UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                          Commission file number 1-7092

                        Illinois Central Railroad Company
             (Exact name of registrant as specified in its charter)

       Delaware                                                   36-2728842
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                              Identification No.)

455 North Cityfront Plaza Drive, Chicago, Illinois              60611-5504
--------------------------------------------------            ---------------
 (Address of principal executive offices)                       (Zip Code)

               Registrant's telephone number, including area code:
                                 (312) 755-7500

         Securities registered pursuant to Section 12(b) of the Act:
                                               Name of each exchange on which
Title of each class so registered:             each class is registered:
Illinois Central Railroad Company              New York Stock Exchange
6-3/4% Notes,
due May 15, 2003

Gulf, Mobile and Ohio Railroad Company             New York Stock Exchange
5% Income Debentures,
Series A, due December 1, 2056

    Securities registered pursuant to Section 12(g) of the Act:
                                      None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes ..X.. No ....


     As of March 14,  1997,  there  were 100 shares of the  registrant's  common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         THE  REGISTRANT  IS  A  WHOLLY-OWNED  SUBSIDIARY  OF  ILLINOIS  CENTRAL
CORPORATION (SEC FILE NO. 1-10720) AND MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION  J(1)(a) and (b) of form 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.



<PAGE>





                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                                    FORM 10-K

                          Year Ended December 31, 1996

                                     INDEX
PART I                                                                 10-K Page

  Item 1.     Business....................................................... 3
  Item 2.     Properties.....................................................10
  Item 3.     Legal Proceedings..............................................14
  Item 4.     Submission of Matters to a Vote of Security Holders  (A).......15

PART II

  Item 5.     Market for the Registrant's Common Equity and Related
              Stockholder Matters............................................16
  Item 6.     Selected Financial Data (A)....................................16
  Item 7.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations............................17
  Item 8.     Financial Statements and Supplementary Data....................27
  Item 9.     Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure.........................27

PART III

  Item 10.    Directors and Executive Officers of the Registrant (A).........28
  Item 11.    Executive Compensation (A).....................................28
  Item 12.    Security Ownership of Certain Beneficial Owners and
              Management (A).................................................28
  Item 13.    Certain Relationships and Related Transactions (A).............28

PART IV

  Item 14.    Exhibits, Financial Statement Schedules and Reports
              on Form 8-K....................................................28

SIGNATURES...................................................................29

(A)    Omitted or amended as the  registrant  is a  wholly-owned  subsidiary  of
       Illinois  Central  Corporation  and  meets  the  conditions  set forth in
       General  Instruction  J(1)(a)  and (b) of Form  10-K  and is,  therefore,
       filing this Form with the reduced disclosure format.

                                        2

<PAGE>



                                     PART I

Item 1.  Business

Background

       Illinois  Central  Railroad  Company  ("ICRR") traces its origin to 1851,
when ICRR was  incorporated  as the  nation's  first land grant  railroad.  ICRR
operates 2,600 miles of main line track between  Chicago and the Gulf of Mexico,
primarily  transporting  chemicals,  coal,  paper,  grain and milled grain,  and
intermodal  trailers and  containers.  ICRR is a  wholly-owned  subsidiary and a
principal asset of Illinois Central Corporation ("IC").

       The principal  executive office of ICRR is located at 455 North Cityfront
Plaza Drive,  Chicago,  Illinois  60611-5504  and its telephone  number is (312)
755-7500.

Plan 2000

       In the spring of 1995,  IC developed and  announced  Plan 2000.  This new
plan is designed  to build on the  success of the 1992 plan and  position IC for
the next century.  Plan 2000 calls for (i) revenue to grow from the 1994 base of
$595 million to $800 million by the end of 1999, (ii) the continued reduction of
the  operating  ratio to below 60%,  and (iii) a  Long-Term  Equity  Enhancement
Program  of  increased  dividends  and  share  repurchases.   See  "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
Significant Developments."

                                        3

<PAGE>



Commodities and Customers

       ICRR's  customers are engaged in a wide variety of businesses  and ship a
number of different  products  that can be  classified  into  commodity  groups:
chemicals,  coal,  grain,  paper,  grain mill and food products,  intermodal and
other  commodities.  In 1996,  a  customer  accounted  for  approximately  8% of
revenues (two other  customers  exceeded 5%, no other customer  exceeded 5%) and
the ten largest customers accounted for approximately 37% of revenues.

       In order to address the diversity of IC's customer base, ICRR's marketing
department is organized into two major groups - Bulk and Consumer Products.  The
Bulk group is responsible for coal,  chemicals and grain related  products.  The
Consumer group covers forest products,  intermodal and metals.  These units work
with current and prospective customers to develop customized shipping solutions.

       The principal elements of these commodity groupings are as follows:

Chemicals ...................      A  wide  variety  of  chemicals  and  related
                                   products  such  as  chlorine,  caustic  soda,
                                   potash,  soda ash,  vinyl  chloride  monomer,
                                   carbon dioxide,  synthetic resins,  alcohols,
                                   glycols, styrene monomer, plastics,  sulfuric
                                   acid,   muriatic  acid,   anhydrous  ammonia,
                                   phosphates,  mixed  fertilizer  compounds and
                                   carbon blacks.

Coal.........................      Bituminous and metallurgical coal.

Grain........................      Corn, wheat,  soybeans,  sorghum,  barley and
                                   oats.

Paper........................      Pulpboard,   fiberboard,  woodpulp,  printing
                                   paper, newsprint and scrap or waste paper.

Grain Mill & Food
  Products...................      Products  obtained  by  processing  grain and
                                   other  farm  products  such as feed,  soybean
                                   meal, corn syrup, flour and middlings, animal
                                   packinghouse  by-products  (tallow),   canned
                                   food, corn oil, soybean oil,  vegetable oils,
                                   malt liquors, sugar and molasses.

Intermodal...................      A wide variety of products  shipped either in
                                   containers or trailers on specially  designed
                                   cars.

Other........................      Pulpwood  and  chips,  lumber  and other wood
                                   products;  sand,  gravel and stone,  coke and
                                   petroleum  products,  metallic ores and other
                                   bulk  commodities;  primary and scrap metals,
                                   machinery  and  metal  products,  appliances,
                                   automobiles    and   parts,    transportation
                                   equipment and farm machinery;  glass and clay
                                   products, ordnance and explosives, rubber and
                                   plastic products, and general commodities.

         The respective percentage contributions by principal commodity group to
ICRR's freight revenues and revenue ton miles during the past five years are set
forth below:


                                        4

<PAGE>



           Contributions to Total Freight Revenues by Commodity Group
 Commodity
 Group                       1996      1995       1994      1993         1992
 ---------                   ----      ----       ----      ----         ----
Chemicals..................  27.6%    26.4 %      24.8%     25.0%        24.3%
Coal.......................  14.1     13.5        15.2      12.8         15.3
Grain......................  10.3     14.1        10.2      14.0         12.2
Paper......................  12.6     12.6        12.2      12.4         12.1
Grain mill & food products.   8.6      8.9         8.5       9.8          8.8
Intermodal.................   8.7      7.6         6.6       5.4          5.4
All other..................  18.1     16.9        22.5      20.6         21.9
                           ------    -----       -----     -----        -----
Total...................... 100.0%   100.0%      100.0%    100.0%       100.0%
                            =====    =====       =====     =====        =====

              Contribution to Revenue Ton Miles by Commodity Group
 Commodity
 Group                      1996      1995        1994      1993         1992
 ---------                  ----      ----        ----      ----         ----
Chemicals.................  16.6%     14.6%      15.8%      15.9%        15.1%
Coal......................  24.1      20.8       24.0       15.1         18.2
Grain.....................  18.3      26.8       20.0       27.9         27.3
Paper.....................   9.3       9.0        9.8        9.6          9.0
Grain mill & food products   9.3       9.8        9.3        9.9          9.0
Intermodal................   6.5       5.5        5.5        3.7          3.1
All other.................  15.9      13.5       15.6       17.9         18.3
                           -----     -----      -----      -----       ------
Total..................... 100.0%    100.0%     100.0%     100.0%       100.0%
                           =====     =====      =====      =====        =====


         In 1996,  approximately 68% of ICRR's freight traffic originated on its
own  lines,  of  which  approximately  21%  was  forwarded  to  other  carriers.
Approximately 17% of ICRR's freight traffic was received from other carriers for
final delivery by ICRR, and the balance of approximately 15% represented  bridge
or through traffic.

Terminal Operations

         ICRR currently has a "transload" facility located in Harvey,  Illinois.
This facility stores cars of plastic pellets which are loaded  subsequently into
tanker trucks (i.e.,  transload) for  distribution  to smaller,  non-rail served
manufacturers. During 1997, ICRR plans to double the size of this facility.


                                        5

<PAGE>



Operating Statistics

         Set forth  below is  certain  information  relating  to ICRR's  freight
traffic during the past five years:

                                 1996       1995     1994     1993        1992
                                 ----       ----     ----     ----        ----

Carloads (in thousands)           927        957      915      848         852
Freight train miles
  (in thousands)1.............  7,950      7,758    7,179    5,659       5,149
Revenue ton miles of freight
  traffic (in millions)2...... 22,132     24,635   21,160   20,334      18,734
Revenue tons per carload         71.7       74.7     76.3     79.1        76.6
Average length of haul
  (in miles)..................    309        328      286      293         284
Gross freight revenue per
  ton mile3...................  $.026     $ .025  $  .027  $  .027     $  .029
Net freight ton miles per
  average route mile
  (in millions)...............    8.4        9.3      7.9      7.5         6.8
Gallons per ton mile4......... .00236     .00234   .00248   .00251      .00269
Active locomotives............    331        333      328      322         331
Track resurfacing (miles)       1,360      1,360    1,397    1,293       1,465
Percent resurfaced............  33.7%      32.2%    33.0%    29.8%       32.0%
Ties laid in replacement
  (including switch ties).....425,999    408,760  346,994  323,764     296,536
Slow order miles.............. 100.00     209.76   275.79   152.32      135.42



1    Freight train miles equals the total number of miles traveled by all trains
     in the movement of freight.
2    Revenue  ton miles of freight  traffic  equals the product of the weight in
     tons of freight  carried for hire and the distance in miles between  origin
     and destination.
3    Revenue  per ton mile  equals net  freight  revenue  divided by revenue ton
     miles of freight traffic.
4    Gallons per ton mile equals the amount of fuel  required to move one ton of
     freight one mile.

     The following tables summarize operating  expense-to-revenue ratios of ICRR
for each of the past five years, excluding the effect of the $8.9 million pretax
special  charge in 1992.  The first table  analyzes  the various  components  of
operating  expenses based on the line items appearing on the income  statements,
whereas  the  second  table is based on  Surface  Transportation  Board  ("STB")
functional groupings.


                                        6

<PAGE>



     Ratio                        1996      1995     1994    1993  1992
     -----                        ----      ----     ----    ----  ----

Operating1.....................  64.4%     65.6%    67.7%   68.6%  70.9%
Labor and fringe benefits......  29.5      30.2     30.9    31.2   32.0
Leases and car hire............   9.2       9.1     10.0    12.5   13.0
Diesel fuel....................   5.6       5.1      5.3     5.4    5.5
Materials and supplies.........   5.1       5.4      6.0     6.2    5.8
Depreciation and amortization..   5.0       4.8      4.2     4.0    4.3
Casualty, insurance and losses.   1.8       2.7      4.0    3.8     4.8
Other taxes....................   2.7       2.8      2.9     2.9    2.3
Other..........................   5.5       5.5      4.4     2.6    3.2


                                 1996      1995     1994    1993   1992
                                 ----      ----     ----    ----   ----

Operating1.....................  64.4%     65.5%    67.6%   68.6%  70.9%
Transportation2................  27.9      28.0     28.9    29.6   31.6
Maintenance of way3............   7.2       7.8      7.7     7.2    7.1
Maintenance of equipment4......  18.5      20.3     20.6    21.3   22.9



1    Operating ratio means the ratio of operating expenses before special charge
     over operating revenues.
2    Transportation  ratio means the ratio of  transportation  expenses (such as
     expenses of operating,  servicing,  inspecting,  weighing,  assembling  and
     switching trains) over operating revenues.
3    Maintenance  of way ratio means the ratio of  maintenance  of way  expenses
     (such as the expense of repairing,  maintaining,  leasing, depreciating and
     retiring  right-of-way and trackage  structures,  buildings and facilities)
     over operating revenues.
4    Maintenance of equipment  ratio means the ratio of maintenance of equipment
     expenses  (such  as  the  expense  of  repairing,   maintaining,   leasing,
     depreciating  and retiring  transportation  and other operating  equipment)
     over operating revenues.

Employees; Labor Relations

         Labor  relations  in the  railroad  industry  are subject to  extensive
governmental  regulation under the Railway Labor Act.  Employees in the railroad
industry  are  covered  by the  Railroad  Retirement  System  instead  of Social
Security.  Employer  contribution rates under the Railroad Retirement System are
currently more than double those in other industries and may rise further as the
proportion of retired employees  receiving  benefits  increases  relative to the
number of working employees.  Railroad employees are also covered by the Federal
Employer's  Liability  Act  ("FELA")  rather  than by state  no-fault  workmen's
compensation  systems.  FELA is a  fault-based  system,  with  compensation  for
injuries determined by individual negotiation or litigation.

         Approximately  90% of all  employees are  represented  by one of eleven
unions.  The general  approach to labor  negotiations by Class I railroads is to
bargain  on  a  collective  national  basis.  For  several  years  now,  one  of
management's   guiding  principles  is  that  local  --  rather  than  national,
industry-wide  --  negotiations  will  result in labor  agreements  that  better
address both employees'  concerns and  preferences  and ICRR's actual  operating
environment.  Therefore, beginning in late 1994, ICRR began negotiating separate
distinct  agreements  with each of its  eleven  unions.  To date,  ten of ICRR's
eleven bargaining units,  representing 85% of ICRR's represented workforce, have
ratified local  agreements  that resolve wage and work-rule  issues through 1999
for shop crafts and

                                        7

<PAGE>



through  the year 2000 for  trainmen.  The  latter  agreement  is similar to the
national  agreement,  except that the timing of various rate  increases and lump
sum payments has been changed.  ICRR continues to negotiate with the Brotherhood
of Locomotive Engineers, its only unsigned union.

         There are risks  associated with  negotiating  locally.  Presidents and
Congress  have  repeatedly  demonstrated  they  will  step in to avoid  national
strikes,  while a local dispute may not generate federal intervention,  making a
work stoppage potentially more likely.  ICRR's management believes the potential
mutual benefits of local bargaining outweigh the risk.

         The following table shows the average annual  employment levels for the
last five years:

                     1996        1995         1994        1993        1992
                     ----        ----         ----        ----        ----
Total employees     3,238       3,268        3,250       3,306       3,421

         Management  believes  that over the next several  years  attrition  and
retirements will be the primary source of future declines in employment  levels.
Increases in employment levels,  particularly in train operations,  are possible
in response to growth of business in accordance with Plan 2000.

Regulatory Matters; Freight Rates; Environmental Considerations

         ICRR is subject to significant  governmental  regulation by the STB and
other federal,  state and local  regulatory  authorities  with respect to rates,
service, safety and operations.

         The  jurisdiction  of the STB  encompasses,  among other things,  rates
charged for certain transportation  services,  assumption of certain liabilities
by railroads,  mergers or the  acquisition  of control of one carrier by another
carrier and extension or abandonment of rail lines or services.

         The Federal Railroad Administration, the Occupational Safety and Health
Administration and certain state transportation  agencies have jurisdiction over
railroad  safety  matters.  These  agencies  prescribe  and enforce  regulations
concerning car and locomotive safety equipment, track safety standards, employee
work conditions and other operating practices.

         ICRR  currently  transports a significant  volume of Southern  Illinois
coal.  Much of the coal from mines in that area will not meet the  environmental
standards  of the  Clean  Air  Act  without  blending  with  compliance  coal or
installation  of air  scrubbers  at point of use.  As a result,  this  source of
traffic is expected to decline.  On the other hand,  ICRR expects to participate
in additional movements of Western coal and certain Southern Illinois coal which
does comply.  Overall,  management believes that implementation of the Clean Air
Act is unlikely to have a material adverse effect on the results of ICRR.

         Currently,  the  utility  industry  is  undergoing  deregulation.  Some
analysts have suggested that utility deregulation will significantly reduce rail
revenue. However, the impact of utility deregulation on ICRR should be less than
the effect on other railroads  because there are no captive  utilities served by
ICRR.  See  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations - Outlook" for additional comments.


                                        8

<PAGE>



         ICRR is and will continue to be subject to extensive  regulation  under
environmental laws and regulations  concerning,  among other things,  discharges
into the environment and the handling,  storage,  transportation and disposal of
waste and  hazardous  materials.  Inherent  in the  operations  and real  estate
activities of ICRR and other railroads is the risk of environmental liabilities.
See Item 2.  "Properties - Environmental  Conditions" for discussion of sites on
which the ICRR currently or formerly  conducted  operations  that are subject to
governmental  action in connection with  environmental  degradation.  The EPA is
expected  to  propose  regulations   limiting  locomotive  emissions  which  may
significantly  increase the purchase price or operating  expense of locomotives.
Additional expenditures by ICRR may be required in order to comply with existing
and  future  environmental  and health and  safety  laws and  regulations  or to
address contaminated sites which may be discovered.

Competition

         ICRR faces intense  competition for freight traffic from motor,  water,
and pipeline  carriers and from other railroads.  Competition is generally based
on the rates charged and the quality and  reliability  of the service  provided.
Low fuel prices  disproportionately  benefit  trucking  operations over railroad
operations since fuel costs are a relatively  larger cost component for trucking
companies.  The  trucking  industry  frequently  is more  cost and  transit-time
competitive  than railroads,  particularly for distances of less than 300 miles.
While deregulation of freight rates under the Staggers Act has greatly increased
the  ability of  railroads  to compete  with each other and  alternate  modes of
transportation, changes in governmental regulations (particularly changes to the
Staggers  Act)  could  significantly  affect  ICRR's  competitive  position.  At
December  31,  1996,  there were 10  railroads  in the United  States and Canada
classified  by revenues as Class I railroads.  ICRR is ninth in revenues and has
the best operating ratio.

         To a greater  degree than other rail  carriers,  ICRR is  vulnerable to
barge competition  because its main routes are parallel to the Mississippi River
system.  The use of barges for some  commodities,  particularly  coal and grain,
sometimes  represents a lower cost mode of transportation.  As a result,  ICRR's
revenue per ton-mile has generally  been lower than industry  averages for these
commodities.  Barge  competition  and barge rates are  affected by  navigational
interruptions from ice, floods and droughts.  These  interruptions  cause widely
fluctuating rates.  ICRR's ability to maintain its market share of the available
freight has  traditionally  been affected by the navigational  conditions on the
river.  However,  it  appears  to ICRR that  worn-out  barges are coming off the
Mississippi  at a faster  rate than new barge  capacity  is being  added.  A net
reduction of barge  capacity  could lead to firmer,  less variable barge pricing
than has been the case  over the last 15 years or so.  If this  trend  develops,
ICRR may benefit.

         Most of ICRR's operations are conducted between points served by one or
more competing carriers. The consolidation in recent years of major rail systems
has  resulted  in strong  competition  in the  service  territory  of ICRR.  The
mega-carriers  could use their size and pricing power to block shippers'  access
to efficient  gateways  and routing  options  that are  currently  and have been
historically available.

         To date,  mergers have not had a material adverse impact on the results
or  financial   condition  of  ICRR.  In  fact,  ICRR  has  capitalized  on  new
opportunities  that  have  developed  out of the  consolidation  in the  West by
providing  services  to other  carriers,  some of  which  address  the  issue of
maintaining routing options.

                                        9

<PAGE>



         While there may be risks from future mergers, ICRR believes those risks
are manageable.  See "Managements Discussion and Analysis of Financial Condition
and Results of Operations."

Liens on Properties

ICRR's equipment is not subject to liens.

Liability Insurance

         ICRR is  self-insured  for the  first $5  million  of each  loss.  ICRR
carries $245 million of liability insurance per occurrence, subject to an annual
cap of $335 million in the aggregate for all losses. This coverage is considered
by ICRR's  management to be adequate in light of ICRR's safety record and claims
experience.

Item 2.  Properties

Physical Plant and Equipment

         System.  As of December  31, 1996,  ICRR's  total  system  consisted of
approximately  4,500 miles of track  comprised of 2,600 miles of main line,  200
miles of  secondary  main line and 1,700  miles of passing,  yard and  switching
track.  ICRR owns all of the track except for 190 miles  operated by  agreements
over track owned by other railroads.

         Track and Structures.  The following amounts have been spent during the
five years ended  December 31,  1996,  on track and  structure to construct  and
maintain rail lines and related  signal  equipment,  and other  facilities ($ in
millions):

                     Capital
                   Expenditures        Maintenance           Total

1996.............    $  91.2           $  23.7               $114.9
1995.............       66.9              33.5                100.4
1994.............       63.2              29.1                 92.3
1993.............       50.3              25.1                 75.4
1992.............       46.4              23.0                 69.4
                      ------            ------               ------

           Total.     $318.0            $134.4               $452.4
                      ======            ======               ======


         These expenditures have concentrated primarily on the rehabilitation of
the track roadway and bridges. Approximately, 1,400 miles of roadway ballast was
resurfaced in each of the last three years.


         In 1996 a total of $20.1  million was spent to construct an  intermodal
terminal  facility for the  Canadian  National  Railroad  ("CN  Terminal").  The
largest projects were a total of $11.4 million to complete the conversion of 198
miles of track, known as the Yazoo District,  to a single track with centralized
traffic  control  in 1993 and 1994 and a total  of $11.4  million  was  spent to
construct new or expanded  intermodal  facilities in Chicago and Memphis in 1992
and 1994. See "Management's Discussion and

                                       10

<PAGE>



Analysis of Financial  Condition and Results of Operations"  for a discussion of
future capital expenditures.

         Locomotives  and Freight Cars.  ICRR's fleet has undergone  significant
rationalization  and modernization  since 1985 when locomotives and cars were at
their peak of 862 and 28,616, respectively. Over the last four years lease of 59
used  SD-40-2's  and 20-new  SD-70's have enabled ICRR to replace  older,  lower
horsepower and less efficient  locomotives.  (The 20 SD-70's  replaced 31 older,
smaller  locomotives.)  These  locomotives  are owned by IC's  financing/leasing
subsidiaries and are leased to ICRR.

         Locomotive  modernization  and  acquisition  were  part of a change  in
operational  philosophy  concerning  equipment  which resulted in adoption of an
equipment ownership program in 1993.

         The program includes lease  conversions  whereby  equipment is acquired
outright or leased under more favorable  lease terms by ICRR.  Through 1995, the
conversion  program involved 118 locomotives and 4,228 freight cars. As a result
of the new lease terms,  $7.1 million and $24.7  million of capital  leases were
recorded in 1995 and 1994,  respectively.  Most of these  leases  contain  fixed
price  options  whereby  the  equipment  can be acquired at or below fair market
value at some point during the lease term.

         Approximately  1,800  of the cars  leased  by ICRR  are  leased  from a
separate subsidiary of IC. This subsidiary's  remaining cars are leased to other
non-affiliated  companies.  When those  leases  expire,  ICRR has first right of
refusal to lease the  equipment.  If ICRR  exercises  its rights,  other  leased
equipment  will be  returned  to the  independent  and  third-party  lessors  or
short-term car hire agreements are terminated.

         The third segment of the equipment program was a significant upgrade of
the highway  trailer fleet used in intermodal  service.  The entire fleet of old
leased  trailers,  approximately  880, was replaced with 800 brand new trailers.
Expanding intermodal volume necessitated the addition of another 100 trailers in
1994.

         During 1994 ICRR repaired and reconditioned approximately 173 cars at a
cost of $2.9 million.  This  equipment is being leased on a short-term  basis to
other carriers until the ICRR anticipates it will need the equipment.

         In 1996, ICRR began a covered hopper fleet program under which existing
equipment was either modernized or replaced.  Approximately  800 cars,  operated
under  short-term car hire  arrangements  or various  leases,  were returned and
replaced by 600 newly built high  capacity  hoppers which are being leased under
an operating lease from an unrelated third party.


                                       11

<PAGE>



         The following is the overall fleet at December 31:

Total Units:          1996       1995     1994       1993      1992
------------          ----       ----     ----       ----      ----
Locomotives1......     391        397      417        468       449
Freight cars......  15,838     15,872   16,498     16,634    15,877
Work equipment....     655        654      625        745       902
Highway trailers..     889        898      898        898       203



  1  Approximately  55  locomotives  need repair  before they can be returned to
     service.  This equipment is repaired if needed on an ongoing basis or sold.
     ICRR sold 6, 40, 48, 23 and 66 surplus  locomotives  in 1996,  1995,  1994,
     1993 and 1992,  respectively.  The active  fleet is 331 as of December  31,
     1996.

    The components of the fleet for 1996 and in total for 1995 are shown below:

                                    Long-Term      1996       1995
Description1                Owned2    Lease       Total      Total

Locomotives:
  Multipurpose                212       97          309        312
  Switching                    60       22           82         85
                           ------   ------       ------     ------
            Total             272      119          391        397
                           ======   ======       ======     ======

Freight Cars:
 Box (general service)        224    1,220        1,444      1,481
 Box (special purpose)      2,373      534        2,907      3,011
 Gondola                      955      600        1,555      1,428
 Hopper (open top)          2,122    1,993        4,115      4,182
 Hopper (covered)           2,762    1,183        3,945      3,554
 Flat                         230      366          596        705
 Other                        846      430        1,276      1,406
                           ------   ------       ------     ------
                  Total     9,512    6,326       15,838     15,767
                           ======    =====       ======     ======
 Work Equipment               655                   655        654
                           ======                ======     ======
  Highway trailers            889                   889        898
                           ======                ======     ======


  1 In addition,  approximately 1,575 freight cars were being used by ICRR under
  short-term car hire agreements. 2 Includes 25 locomotives and 765 freight cars
  under capital leases.

Environmental Conditions

         ICRR  faces  potential  environmental  cleanup  costs  associated  with
approximately 25 contaminated  sites and various fueling  facilities for which a
total of $17  million  has been  reserved  as of  December  31,  1996.  The most
significant of those sites are described below.

Mobile, Alabama

         ICRR  owned  property  in  Mobile  prior  to 1976  upon  which a lessee
conducted  creosoting  operations.   The  Alabama  Department  of  Environmental
Management has determined that the soil and groundwater  are  contaminated  with
creosote, pentachlorophenol and possibly dioxins. ICRR has been participating in
joint cleanup efforts with the current owner and ICRR's former lessee.  See Item
3.
"Legal Proceedings."


                                       12

<PAGE>



Jackson, Tennessee

         A rail  yard in  Jackson,  Tennessee,  formerly  owned by ICRR has been
placed on the federal and state "superfund" list as a result of the discovery of
Trichloroethylane  (TCE)  in the  adjacent  municipal  water  well  field.  ICRR
formerly  operated a shop facility at the site and TCE is a common  component of
solvents  similar to those believed to have been used in the shop. ICRR believes
it has demonstrated  that the TCE did not come from its operation,  or from this
site. See Item 3. "Legal Proceedings."

McComb, Mississippi

         ICRR has conducted a site  assessment  of a facility  where car repairs
were  formerly  performed to determine  the nature and extent of  contamination,
primarily lead from removed paint,  at the site. The Railroad is now preparing a
remediation  plan under the supervision of the  Mississippi  Bureau of Pollution
Control.  Estimates of remaining  clean up costs range  between $2.7 million and
$8.0 million.

Kegley, Illinois

         Emergency  response  action  has been  taken by ICRR at this scene of a
1994  derailment in which about 22,000 gallons of TCE were  released.  The spill
has been  contained by  construction  of an  impervious  wall  extended into the
bedrock and encircling the site. ICRR has enrolled in Illinois'  Pre-Notice Site
Cleanup Program and is voluntarily  remediating the site. Estimates of remaining
clean up costs range  between $1.4 million and $7.0  million.  ICRR believes the
shipper  bears some  responsibility  for the  release  and has  initiated  legal
action.

East Hazel Crest, Illinois

         In 1994 ICRR  learned  that an  underground  fuel line had leaked about
100,000 gallons of diesel fuel into the soil and groundwater.  ICRR has replaced
the fuel tank and piping,  has constructed a groundwater  remediation system and
has enrolled the site in Illinois' Pre-Notice Site Cleanup Program.
See Item 3. "Legal Proceedings."

Fueling Facilities

         ICRR has  maintained  fueling  facilities  at more than 20 locations at
various  times  from the  1950's  to date.  Many of  those  sites  are or may be
contaminated  with spilled fuel.  Those  stations  currently in use are equipped
with drip pans and  treatment  facilities  and ICRR has  initiated  a program of
rebuilding all fuel lines above ground.

Waste Oil Generation

         ICRR has been identified as a Potentially  Responsible Party ("PRP") at
a site where waste oil was allegedly processed and disposed.  ICRR is alleged to
have generated some of the waste oil. ICRR believes any contribution it may have
made to the site contamination is de minimis. See Item 3.
"Legal Proceedings."


                                       13

<PAGE>



Item 3.  Legal Proceedings

State of Alabama,  et al. v. Alabama Wood  Treating  Corporation,  Inc., et al.,
S.D. Ala. No. 85-0642-C

         The State of Alabama and Alabama State Docks ("ASD") filed suit in 1985
seeking damages for alleged pollution of land in Mobile, Alabama,  stemming from
creosoting operations over several decades. Defendants include ICRR, which owned
the land  until  1976,  Alabama  Wood  Treating  Corporation,  Inc.,  and Reilly
Industries, Inc. ("RII"), which leased the land from ICRR and conducted creosote
operations  on the site.  In December  1976,  ICRR sold the premises to ASD. The
complaint  sought payment for the clean-up cost together with punitive and other
damages.

         In 1986, ASD, RII and ICRR agreed to form a joint  technical  committee
to clean the site, sharing equally the cost of clean-up, and in October 1986 the
court stayed  further  proceedings  in the suit.  Under the  agreement the joint
technical committee has spent approximately $6.8 million and has been authorized
to expend up to a total of $6.9  million.  ICRR has  contributed  $2.3  million.
Further clean-up activities are anticipated,  the cost of which could range from
$1.8  million  to $10.7  million  depending  upon the  clean  up  standards  and
remediation  methods  ultimately  required and  utilized.  Under the  agreement,
ICRR's share of the costs would range from $600,000 to $3.6 million.

         Under the agreement,  if any party disagrees with the amount determined
by the joint technical  committee to be expended or otherwise disagrees with any
aspect  of the  clean-up,  such  party may  decline  further  participation  and
recommence legal proceedings.  However, amounts already contributed by any party
will  be  credited  against  that  party's  eventual  liability  and  may not be
recovered from any other party. No party has declined further participation.

In the Matter of Illinois Central Railroad Company,  et al.,  Tennessee Division
of Superfund No. 94-0187

         The Tennessee  Department of Environment and  Conservation,  on June 6,
1994,  issued a Remedial Order requiring  cleanup by ICRR and the current owners
of a site in Jackson, Tennessee. ICRR operated a rail yard and locomotive repair
facility  at the  site.  Trichloroethylane  ("TCE")  has been  found in  several
municipal  water  wells near the site.  TCE is a common  component  of  solvents
similar  to  those  believed  to  have  been  used  at the  shop.  In  addition,
concentrations  of metals and  organic  chemicals  have been  identified  on the
surface of the site. A preliminary remedial  investigation and feasibility study
has been  completed  which  indicates  the TCE in the water  wells  came from an
adjacent  municipal  dump and not from  operations  on this site.  Exclusive  of
ground-water  cleanup,  ICRR estimates total clean up costs between $3.5 million
and $7.6 million and expects another PRP to share in the expense.

People of the State of  Illinois v.  Illinois  Central  Railroad  Company No. 95
CH842 (Circuit Court of Cook County, Illinois)

         On  February  2, 1995,  the State of  Illinois  filed a  Complaint  for
Injunction and Civil Penalties against ICRR relating to a release of diesel fuel
from an  underground  pipeline  at ICRR's  Markham  Yard  facility in East Hazel
Crest,  Illinois. The Complaint alleges that ICRR violated State water pollution
statutes by allowing diesel fuel to enter waters of the State and seeks an order
compelling  ICRR to take necessary  corrective  actions at the site and to pay a
civil penalty of $100,000.  ICRR has replaced its fueling  tanks and  pipelines,
and  expects  remaining  clean up costs to range  between  $.4  million and $3.0
million.


                                       14

<PAGE>



South Eighth Street Landfill, West Memphis, Arkansas.

         ICRR  was  named  by the  EPA as a  Potentially  Responsible  Party  in
connection with a sludge oil pit at this location. It is alleged that ICRR along
with numerous other  commercial  and  governmental  entities  generated used oil
which was processed at this site and thus contributed to the contaminated sludge
on the site.  ICRR has entered into an agreement with numerous other PRP's under
which ICRR's  share of the clean up cost will be .2%.  Based on estimates of the
likely remediation cost, ICRR's contribution under the PRP agreement is expected
to be less than $20,000.


Item 4.  Submission of Matters to a Vote of Security Holders

         Intentionally omitted. See Index page of this report for explanation.

                                       15

<PAGE>



                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

         All of the  outstanding  common stock of the ICRR (100 shares) is owned
by IC and  therefore  is not traded on any market.  Certain  covenants of ICRR's
Revolver  while not  specifically  restricting  dividends do require the ICRR to
maintain  minimum  levels of tangible  net worth.  While not  anticipated,  such
restrictions  could limit the amount of  dividends  paid by the ICRR to IC. ICRR
paid cash dividends to IC of $103.2 million in 1996,  $107.7 million in 1995 and
$42.5 million in 1994. At December 31, 1996, approximately $26.9 million of ICRR
equity was free of such  restriction.  In January 1997, ICRR declared and paid a
dividend of $17.8 million to IC.

Item 6.  Selected Financial Data

         Intentionally omitted. See Index page of this Report for explanation.


                                       16

<PAGE>



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Significant Developments

CCP Holdings, Inc. Acquisition

           On June 12, 1996, ICRR used proceeds it received from the issuance of
Commercial  Paper (average  interest rate 5.52% and average maturity 30 days) to
pay a $50.0 million  dividend to IC and to loan $59.9 million (5.625% per annum)
to IC. IC used the $109.9  million  and its bank  credit  lines to  acquire  CCP
Holdings,  Inc. ("CCPH").  The transaction  closed June 13, 1996,  following the
effective date of the approval order issued by the Surface  Transportation Board
("STB").

           CCPH has two principal  operating  subsidiaries - the Chicago Central
and  Pacific  Railroad  ("CCPR")  and the Cedar River  Railroad  ("CRR") - which
together  comprise a Class II railroad system  operating 850 miles of road. CCPR
operates from Chicago to Omaha, Nebraska,  with connecting lines to Cedar Rapids
and Sioux City, Iowa. CRR runs from Waterloo, Iowa to Albert Lea, Minnesota.

1992 Four-Year Growth Plan and Plan 2000

           In 1992 the IC announced  its first  growth plan,  for the years 1993
through  1996.  Since the key  concepts--$100  million in revenue  growth and an
operating ratio of 66.7%--were reached by the end of 1995, IC announced a second
growth plan called Plan 2000.

           Plan 2000  calls for (i)  revenue  to grow from the 1994 base of $595
million to $800 million by the end of 1999 and (ii) the  continued  reduction of
the operating ratio to below 60%.

           As designed,  Plan 2000 is intended to focus management on increasing
operating  performance and responding to general  economic  trends quickly.  The
plan assumes that ICRR's growth,  excluding coal use and worldwide grain demand,
will be between 1.2% and 1.7%. This assumption is based on internal  analysis of
published economic forecasts available when the plan was developed,  such as the
Blue Chip Economic Forecast,  which predicted  industrial  production would gain
2.4% to 2.8% per year. As for grain,  Plan 2000 assumes that export grain demand
will be approximately 45,000 carloads annually.

           To achieve Plan 2000,  ICRR will  concentrate on expanding the volume
of  business  from  current  customers,  seeking  to locate  new  businesses  or
expansions by existing  customers on our system, and raising rates when possible
to reflect the value of the services ICRR provides. To increase business in coal
and grain,  ICRR will work with  shippers  to  develop  strategies  and  service
schedules to permit them to participate in the  increasingly  competitive  world
market. For example, ICRR developed a concept of moving export grain to the Gulf
in unit trains of  customer-supplied  cars,  operating in dedicated,  continuous
service approximately ten months of the year.

           As  stated,  a key goal of Plan  2000 was  revenue  growth  from $595
million to $800  million  or  approximately  6% per year or 34% in total.  After
achieving revenues of $645 in 1995 (or an 8.4% increase),  ICRR did not meet its
revenue objectives in 1996; in fact, ICRR's revenues declined 4.4%

                                       17

<PAGE>



to $617.2 million. See "-Results of Operations" and "- Outlook" for the cause of
the 1996 shortfall and a discussion of 1997.

           Achieving Plan 2000 is key to ICRR's incentive  compensation programs
because  those  programs  are  dependent  on revenue  growth and return on total
capital  ("ROTC") of ICRR's parent.  In 1995 revenue growth of 8.4% exceeded the
revenue goal of 5% but in 1996, as stated, revenues declined 4.4% missing the 5%
goal. For 1997, the consolidated IC growth target is 7.5%.

           In 1996,  ROTC of 12%,  was  essentially  threshold  performance  and
matched 1995's performance. For 1997, the consolidated target ROTC is 11.2%.

Results of Operations

           The discussion  below takes into account the financial  condition and
results  of  operations  of ICRR for the  years  presented  in the  consolidated
financial statements.

1996 Compared to 1995

           Total  revenues  for  1996  decreased  from the  prior  year by $28.1
million or 4.4% to $617.2  million,  following a 3.1%  decrease in the number of
carloadings  coupled  with a 1.5%  decrease in the average  freight  revenue per
carload.

           Grain and grain mill accounted for 17% of ICRR's  carloads and 27% of
ton-miles in 1996. Against 1995, carloads, ton-miles and revenues were down 17%,
31% and 22%  respectively.  Grain  was  clearly  the  primary  cause of the 1996
revenue shortfall.  The comparisons were particularly difficult against a record
grain  carloading  year in 1995.  Illinois'  1995 corn and  soybean  harvest was
abnormally  small  so  that by the  third  quarter  1996  grain  elevators  were
essentially  depleted and the new harvest was still weeks away.  Rail rates were
higher on  average  this year  versus  last;  demand for grain was  strong;  the
product just was not  available to move.  The smaller crop also  affected  grain
mill  since  domestic  processors  were  forced  to  cut  back  on  their  usual
production.

           Coal  accounted  for 22% of ICRR's  carloads  and 24% of ton-miles in
1996.  Against  1995,  carloads,  ton-miles and revenues were down 6%, up 6% and
flat, respectively. A large coal contract for 25,000 carloads was not renewed in
July 1995 as a large customer wanted more aggressive pricing and went elsewhere.
Thus,  loads in the first  half of 1996  compared  with 1995 were  significantly
depressed.  However, for a second year in a row, coal margins, and the return on
the assets involved, improved.

           Chemicals  accounted for 15% of ICRR's  carloads and 17% of ton-miles
in 1996. Compared with 1995,  ton-miles were down 2% while carloads and revenues
were flat. Rail rates,  under pressure in the earlier months of the year, firmed
in the second half.  The softness  observed in the  economy,  especially  in the
first two quarters,  was  reflected in the building of chemicals  manufacturers'
inventories  and softness in our  customers'  pricing.  Our  customers'  markets
firmed in the latter half of the year so that ICRR came in  essentially  flat in
both chemical loads and revenues.


                                       18

<PAGE>



           Paper  and  Forest  Products  were  15% of 1996  carloads  and 14% of
ton-miles. Total carloads were down 6% while ton-miles and revenues were down 3%
versus 1995. Rail rates held up reasonably  well throughout the year.  Paper and
forest  products  are  economically   sensitive   commodities  that  respond  to
industrial production, housing starts and other basic economic indicators. Fiber
and pulpboard were depressed all year with slight improvements only recently.

           Bulk  Commodities  contributed  6% of carloads and ton-miles in 1996.
This represents  carload and revenue growth of  approximately 4% while ton-miles
were down slightly from the 1995 level. Bulk commodities are primarily stone and
other  construction  materials and are closely tied to state  highway  projects.
This smaller  commodity group  fluctuates with the timing of projects as well as
the availability of freight cars for this lower-margin business.

           Metals  accounted  for 4% of ICRR's  carloads  and 5% of ton-miles in
1996. For 1996,  versus 1995,  carloads,  ton-miles and revenues were up 9%, 21%
and 11%, respectively.  The steel industry had another strong year, and ICRR set
another record for metals loads and revenues.

           Finally,  Intermodal  accounted  for 21% of  ICRR's  loads  and 7% of
ton-miles. Versus 1995, carloads were up 10%, with ton-miles and revenues up 9%.
These  results  were  achieved in an industry  that saw  trailer  rate  weakness
earlier in the year and some weakness in  automotive  parts traffic later in the
year.

           Operating  expenses overall  decreased $25.7 million or 6.1% in 1996.
Labor and fringe costs include the wage increases of 3% negotiated  with nine of
the ICRR's unions. The decline in this category is primarily the result of lower
traffic  levels,  particularly  grain,  and the elimination of the high overtime
caused by the congestion experienced in 1995. Leases and car hire also benefited
from the elimination of congestion to return to more normal operating levels. In
1995,  favorable  one-time  adjustments on several capital leases were recorded.
Fuel expense  reflects the increase in cost per gallon (13.8%)  partially offset
by  decreased  usage  (9.4%).  The decrease in  casualty,  insurance  and losses
reflects the emphasis on safety and improved claims  experience.  Other expenses
reflect the one-time  reversal of non-revenue  related  accruals to actual ($2.5
million) and favorable  performance payments in joint facilities that congestion
in 1995 prevented us from receiving ($.7 million).

           Operating income for 1996 decreased by $2.4 million or 1.1% to $219.5
million for the reasons cited above.

           On October 3, 1996, ICRR sold its investments in an  industry-captive
insurance  company,  RAIL, Inc., which resulted in a one-time gain,  recorded as
Other Income, Net, of approximately $7 million.

           Net interest expense of $26.5 million for 1996 increased .8% compared
to $26.3 million in 1995. The 1996 expense  includes $3.6 million from increased
borrowings to support the $109.9 million  transferred  from ICRR in June 1996 in
connection with the  acquisition of CCPH.  Overall in 1996,  average  borrowings
have been greater than 1995 and interest rates have been lower.


                                       19

<PAGE>



1995 Compared to 1994

           Revenues for 1995  increased  from the prior year by $50.0 million or
8.4% to  $645.3  million.  The  increase  was a  result  of a 4.6%  increase  in
carloadings  coupled  with a 2.1%  increase in the average  freight  revenue per
carload. In 1995, ICRR experienced  increased carloadings in intermodal (31.2%),
grain and grain  mill  products  (13.2%),  paper  (6.4%) and  chemicals  (4.1%),
partially offset by decreased loadings in coal (11.9%).

           Operating  expenses for 1995 increased  $20.5 million or 5.1%.  Labor
and fuel expenses  increased  reflecting the increased  loadings  experienced in
1995 over  1994.  Depreciation  expense  was  higher in 1995  because  of ICRR's
increased   ownership  of  equipment.   Other  expenses,   which  include  joint
facilities,  net  and  equipment  related  expenses,   increased  $9.0  million.
Partially  offsetting the increased expenses was a $.5 million decrease in lease
and carhire  expense and  decreased  casualty,  insurance and loss expense ($6.3
million) reflecting ICRR's emphasis on safety and improved claims experience.

           Operating  income for 1995 increased $29.5 million or 15.3% to $221.9
million for the reasons cited above.

           Net  interest  expense  of  $26.3  million  for 1995  increased  1.2%
compared to $26.0 million in 1994.  Increased debt burden  primarily  associated
with equipment  additions account for the increase in interest expense.  Results
for 1995,  also reflect the issuance of lower coupon debt in connection with the
prepayment  of ICRR's $160  million  Senior  Notes at face value,  plus  accrued
interest and a prepayment  penalty.  The prepayment resulted in an extraordinary
loss of $18.4  million,  $11.4  million  after tax. See "- Liquidity and Capital
Resources."

           Net income was further  affected by a $4.3 million  after tax gain on
the resolution of prior period tax issues.

Outlook
                                    - NOTE -

           This section is intended to provide an  understanding of factors that
will impact ICRR in 1997 and beyond.  This discussion  contains "forward looking
statements"  within  the  meaning  of  the  federal  securities  laws  including
statements of expectations,  beliefs,  plans, and similar expressions concerning
matters that are not historical facts. These statements are subject to risks and
uncertainties  that could cause actual results to differ  materially  from those
expressed in the statements.  These risks and  uncertainties  affecting ICRR are
discussed in greater detail in a separate exhibit to ICRR's Form 10-K for 1996.

On a commodity basis:

           GRAIN:  Following a  disappointing  1996,  the good news is that 1996
corn and soybean  harvests in both Illinois and Iowa were excellent.  The strong
harvests did not immediately translate into improved traffic as farmers withheld
product for better  pricing.  Also,  export demand for U.S.  wheat has fallen in
competition  with  other  wheat  exporting  countries.   However,   world  grain
stockpiles  have been at historic lows and will take several  consistently  good
growing seasons

                                       20

<PAGE>



worldwide to fully replenish.  Iowa and Illinois  together account for more than
35% of all the corn produced in the U.S.;  ICRR runs through some of the richest
and most productive  farmland in the country.  We believe the fundamental  grain
outlook  over  the  next  several  years  is very  positive  for us,  even as we
recognize  the vagaries of the weather and that export  demand for U.S.  grains,
from year-to-year, will always be more volatile than domestic demand, subject to
the  expansions  and  contractions  of  world  supply  as well as  international
agricultural and trade policies.

           COAL: Based on our current  projections,  dependent on stockpiles and
weather in the service  territories  of the utilities we serve,  ICRR expects to
move approximately the same number of loads in 1997 as 1996.

           The subject of coal often evolves to the utility  deregulation  issue
and its impact on ICRR. Since coal transportation represents a large cost factor
for coal-fired  plants,  some believe more intense  competition among utilities,
including  "power-wheeling"  and  "coal-by-wire,"  may cause the pattern of coal
movements  to shift and rail rates to come under  pressure.  While this may turn
out to be the impact on the industry as a whole  (reflecting  the effects on the
dominant coal-hauling railroads), applying the same logic to a niche player like
ICRR is probably  overly  simplistic.  ICRR doesn't have captive  utilities.  We
compete with low-cost barge transportation on the Mississippi and Ohio rivers.

           At this  point,  there  are too  many  variables  to know if  utility
deregulation will have a neutral,  modestly positive or modestly negative effect
on ICRR long  term.  However,  it is worth  noting  that  today we enjoy  better
margins on coal than we did five years ago.

           CHEMICALS:  Based on the improved  economy  experienced  in late 1996
growth of base chemical in 1997 should be consistent with the solid growth rates
seen in the last few  months of 1996.  Growth  beyond  1997  will  come  through
expansions of current  facilities on our line (for example,  Shell and Fina) and
through the addition of new manufacturing  capability.  In this latter category,
Shintech, a subsidiary of Shin-Etsu Chemical Co., has announced  construction of
a major  production  complex  on our  line  near  Geismar,  Louisiana,  which is
expected to begin operation in 1998.

           Two  years  ago we  built in the  Chicago  area a  facility  to store
plastic  pellets in bulk and load them for customers into trucks for delivery to
non-rail  served  sites.  That  facility  has proven so  successful,  it will be
expanded in 1997 to approximately double its size.

           PAPER AND FOREST PRODUCTS:  Following strong demand in 1994 and 1995,
producers  increased  production  capacity in 1995 and early 1996. Now producers
must struggle with the excess  capacity in the industry.  Therefore,  we are not
expecting a rapid  turnaround in this commodity  group,  although longer term we
believe we are well-positioned for modest growth.

           One of our  largest  customers  has been  re-tooling  a major mill to
shift to  long-log  input.  Re-tooling  has not been  completed  as  quickly  as
expected, however, the conversion will benefit us longer term as we will be able
to carry the raw  material  into the mill in addition  to hauling  the  finished
product.


                                       21

<PAGE>



           Georgia Pacific has completed a major distribution center on our line
in northern  Illinois.  As the facility  grows  additional  inbound and outbound
carloads will add to the paper volume.

           METALS: We expect 1997 metals volumes to approximate this year's very
strong performance.  In late 1997, Birmingham Steel will complete a mini-mill in
Memphis.  This mill  represents  significant new  manufacturing  on our line and
enhances the industrial park for potential future development.

           Metals will benefit  from both this new  mini-mill in Memphis and the
IC RailMarine  Terminal,  another  subsidiary of IC, being  constructed south of
Baton Rouge.  RailMarine's anchor customer is a joint venture between Birmingham
Steel and GS Industries.  The venture was formed to construct and operate a $200
million  direct-reduced iron (DRI) plant which will be adjacent to and served by
our facility.

           The joint  venture  will import iron ore  through our  terminal  into
their facility to produce DRI. The output will supply Birmingham  Steel's and GS
Industries' own mills. Much if not all of Birmingham Steel's share of the output
will become input to their Memphis mill.

           INTERMODAL:  This class of traffic is expected to continue its growth
in 1997. The  marketplace  has already begun to respond to this new service with
higher levels of traffic moving via rail.

           In  August,   the   Burlington   Northern  Santa  Fe  ("BNSF")  began
interchanging  with us at Memphis in a traffic  corridor that stretches from the
West Coast to the  Southeast.  The business  originates and terminates in Mobile
and the arrangement creates a sufficient base of business to allow us to re-open
our previously  underutilized Mobile intermodal ramp. In addition to serving the
BNSF,  re-opening the Mobile ramp allows us to market our own  Mobile-to-Chicago
service offering.


           Recently we began a partnership with Conrail which  efficiently links
the southern half of our system to their northeast markets.

           OTHER GROWTH  OPPORTUNITIES:  One of ICRR's  strengths is its diverse
customer base including  chemical,  grain,  coal,  forest  products,  metals and
intermodal  shippers.  In addition to our traditional  customers,  ICRR actively
markets its services and facilities to other railroads so that today many of the
major  railroads are customers.  Two of the most recent examples are the 75-acre
Gateway  Intermodal  Terminal we built for the Canadian  National  Railway and a
service and joint marketing  agreement with BNSF (the "BNSF  Agreement") to move
traffic, originating primarily in Texas, north over our line.

OTHER ISSUES:

           CONSOLIDATIONS:  The American  railroad  system has seen  accelerated
consolidation in the last few years and pending  transactions  suggest the trend
will  continue.  Each rail  merger  presents  a risk that rail  traffic  will be
diverted around ICRR. In the most extreme  circumstances rail mergers could have
a material  adverse  impact on  revenues.  However,  we believe  that ICRR could
adjust its  operations to retain  current  levels of  profitability.  Management
expects to continue to

                                       22

<PAGE>



monitor   developments   and  take  actions  to  mitigate  the  impact  of  rail
consolidations.  Of course, no assurances can be given that such  consolidations
will not have a material adverse affect on ICRR.

           ICRR  also  believes   that   consolidations   are  not   necessarily
problematic. As is evident in the evolution of ICRR over the last several years,
ICRR is  inclined  to see a  changing  landscape  as a source of  potential  new
opportunity for us. And ICRR has done well in capitalizing on new  opportunities
that have  developed  out of the  consolidation  in the West as reflected by the
BNSF Agreement.

Liquidity and Capital Resources

Operating Data ($ in millions):
                                            1996          1995           1994
                                            ----          ----           ----
Cash flows provided by (used for):
 Operating activities...................  $168.9        $168.2          $195.6
 Investing activities...................  (230.0)       (122.8)          (77.0)
 Financing activities...................   104.4         (54.6)         (114.5)
                                          ------        -------        --------
          Net change in cash and
            temporary cash investments.   $ 43.3       $  (9.2)        $   4.1
                                          ======       ========        =======

         Cash from operating activities in 1996, 1995 and 1994 was primarily net
income before  depreciation,  deferred taxes and extraordinary item and 1994 was
also affected by the sales of accounts receivable.

Investing Data

         Additions to property were as follows ($ in millions):

                                     1996          1995             1994
                                     ----          ----             ----

  Communications and signals..    $  12.1       $  10.7          $ 13.8
  Equipment/rolling stock.....       27.7          30.3            22.5
  Track and bridges...........       53.9          47.0            44.7
  Other.......................       25.2           9.6             5.4
                                  -------      --------        --------
           Total                   $118.9        $ 97.6          $ 86.4
                                   ======        ======          ======

         For 1996,  Track and Bridges and Other  include  $3.3 million and $16.8
million,  respectively,  for the CN Terminal.  In 1995, Equipment includes $25.9
million for 20 new SD-70 locomotives placed in service in the fourth quarter. In
1996, 1995 and 1994 capital expenditures  exceeded original estimates as several
opportunities  to acquire  equipment  were acted upon in accordance  with ICRR's
strategy of owning more of its  equipment.  Property  retirements  and  removals
generated proceeds of $6.0 million, $5.4 million, and $8.2 million in 1996, 1995
and 1994, respectively.

         ICRR   anticipates   that  capital   expenditures   for  1997  will  be
approximately $93 million.  Base expenditures of $79 million will concentrate on
track  maintenance,  bridges and freight car upgrades.  These  expenditures  are
expected to be met from current operations or other available sources.


                                       23

<PAGE>



         In June 1996,  following the  effectiveness of the order by the STB, IC
acquired  the stock of CCPH  Holdings  Inc.  (See Note 17.) IC used its own bank
credit  lines and funds  received  from ICRR (a loan of $59.9  million and a $50
million dividend) to complete the $147 million transaction.

Financing Activities

         IC's financing/leasing subsidiaries lease equipment to ICRR.

         Certain  covenants  of  ICRR's  revolver  require  specific  levels  of
tangible net worth but not a specific dividend restriction.  ICRR paid dividends
to IC of ($103.2  million in 1996,  $107.7  million in 1995 and $42.5 million in
1994).  Included in the 1996  dividends to IC is the March 1996 transfer by ICRR
of its ownership in the Chicago Intermodal Company ("CIC") via a dividend of CIC
stock.  The book value of the CIC investment was $5.7 million.  In January 1997,
ICRR declared and paid a dividend of $17.8 million to IC.

         ICRR has a commercial paper program whereby a total of $200 million can
be issued and  outstanding  at any one time.  The program is supported by a $250
million Revolver with the Railroad's  lending group (see below). At December 31,
1996,  Standard  &  Poor's  Corporation   ("S&P"),   Moody's  Investor  Services
("Moody's")  and Fitch  Investors  Service  ("Fitch")  have rated the commercial
paper A2,  P2 and F2,  respectively,  and $20.0  million  was  outstanding.  The
average  interest rate on commercial paper for the year ended December 31, 1996,
was  5.61%  with a range  of  5.41% to  6.06%.  ICRR  views  this  program  as a
significant  long-term  funding source and intends to issue replacement notes as
each  existing  issue  matures.  Therefore,   commercial  paper  borrowings  are
classified as long-term.  ICRR's public debt is rated Baa2 by Moody's and BBB by
S&P.

         In 1994,  ICRR  entered into a revolving  agreement  to sell  undivided
percentage interests in certain of its accounts receivable,  with recourse, to a
financial  institution.  The agreement,  which expires in June 1998,  allows for
sales of  accounts  receivable  up to a maximum of $50  million at any one time.
ICRR services the accounts  receivable  sold under the agreement and retains the
same exposure to credit loss as existed prior to the sale. At December 31, 1996,
$48  million  had been sold  pursuant  to the  agreement.  Costs  related to the
agreement  fluctuate  with changes in prevailing  interest  rates.  These costs,
which are included in Other Income  (Expense),  Net,  were $2.9 million and $3.2
million and $2.2 million for the years ended  December 31,  1996,1995  and 1994,
respectively.  ICRR's accounting for the sale of accounts receivable is impacted
by SFAS No. 125. As a result, the agreement is expected to be modified to comply
with this new  standard so that the  accounting  and  reporting  for the sale of
accounts receivables will remain unchanged.

         In April 1996, ICRR concluded  negotiations with its bank lending group
whereby the  Railroad's  $250  million  Revolver was amended and  restated.  The
amendment  reduced  various  facility  fees and borrowing  spreads,  lowered the
tangible  net worth  requirement  beginning  in the  second  quarter of 1996 and
extended the expiration date to 2001. Fees and borrowing  spreads are predicated
on ICRR's  long-term  credit ratings.  Currently,  the annual facility fee is 15
basis points and borrowings under this agreement are at Eurodollar  offered rate
plus 22.5 basis  points.  The Revolver is used  primarily  for backup for ICRR's
commercial  paper program but can be used for general  corporate  purposes.  The
available  amount is  reduced  by the  outstanding  amount of  commercial  paper
borrowings  and any  letters  of  credit  issued  on  behalf  of ICRR  under the
facility.

                                       24

<PAGE>



No amounts have been drawn under the  Revolver.  At December 31, 1996,  the $250
million was limited to $230.0 million because $20.0 million in commercial  paper
was outstanding.

         Certain  covenants  of ICRR's  debt  agreements  require  among  others
specific levels of tangible net worth but not a specific  dividend  restriction.
At December 31,  1996,  ICRR  exceeded its tangible net worth  covenant by $26.9
million.  ICRR was in compliance  with all  covenants at December 31, 1996,  and
does not contemplate any difficulty maintaining such compliance.

         Throughout  1996 and  1995,  ICRR has been  active in the  public  debt
market issuing bonds and  medium-term  notes  ("MTN's").  In December 1996, ICRR
issued $125 million aggregate amount of 100-year 7.7% debentures,  due September
15, 2096.  These bonds may not be redeemed until 2026 and then only at a premium
which declines to par in 2056. In 1995, $100 million 7.75% non-callable  10-year
notes due May 2005 ("2005  Notes")  were  issued.  (See  below.) A total of $230
million in MTN's were issued over the two years as follows ($ in millions):

  Principle                                     Year
   Amount            Coupon            Issued           Matures
   ------            ------            ------           -------

    $20              6.27%             1995             1998
     30              6.83              1995             2000
     50              6.98              1996             2007
     50              7.12              1996             2001
     30              6.85              1996             1999
     50              6.72              1996             2001

         The  shelf  registration  from  1995  has  been  fully  used.  A  shelf
registration  from 1996 can be used to issue an additional  $70 million in MTN's
or other debt until 2000. Currently, there are no plans to issue additional debt
but capital investments,  other ventures and labor settlements could necessitate
use.

         In 1995,  ICRR prepaid the holders of its $160 million  Senior Notes at
face value plus accrued  interest and a prepayment  penalty.  The monies used to
fund the prepayment were provided by commercial  paper,  the net proceeds of the
2005  Notes and $40  million  from  existing  lines of  credit.  The  prepayment
resulted in an extraordinary loss of $18.4 million, $11.4 million after-tax. The
line of credit borrowings were replaced with the proceeds of MTN's.

         ICRR believes that its available cash, cash generated by its operations
and cash  available from the  facilities  described  above will be sufficient to
meet  foreseeable  liquidity  requirements.  Additionally,  ICRR believes it has
access to the public debt market if needed.

Miscellaneous

         ICRR has entered into various diesel fuel collar agreements designed to
mitigate  significant changes in fuel prices. As a result,  approximately 17% of
ICRR's  short-term  diesel fuel  requirements  through  June 1997 are  protected
against significant price changes.


                                       25

<PAGE>



         ICRR has paid  approximately  $3 million in 1996 and $6 million in each
of 1995  and  1994 for  severance,  lump sum  signing  awards  and  other  costs
associated with various labor  agreements.  Under the terms of local  bargaining
agreements wages will rise 3%-4% per year.

         In October  1996,  the  Brotherhood  of  Maintenance  of Way  Employees
membership  ratified a new  agreement  which settles wage and work rules through
1999. In January 1997, the United  Transportation  Union ("UTU")  ratified a new
agreement  which  settles  wage and  work  rule  issues  through  2000.  The UTU
agreement is similar to the nationally negotiated agreement in effect with other
Class I carriers. The main distinction is timing of the various lump sum payouts
and scheduled  wage  increases.  ICRR  continues to negotiate with its remaining
operating  union on a local level.  While no agreement is pending,  an agreement
may be reached that requires  significant  lump sum payment.  It is too early to
determine  if a separate  agreement  will be  reached  but  management  believes
available funding sources will be sufficient to meet any required payment.

Environmental Liabilities

         ICRR's operations are subject to comprehensive environmental regulation
by  federal,  state  and local  authorities.  Compliance  with  such  regulation
requires  ICRR to modify its  operations  and expend  substantial  manpower  and
financial resources.

         Under the federal Comprehensive  Environmental  Response,  Compensation
and  Liability  Act of 1980  ("Superfund"),  and similar state and federal laws,
ICRR is  potentially  liable for the cost of  clean-up  of various  contaminated
sites.  ICRR  generally  participates  in the  clean-up  at  sites  where  other
substantial parties share responsibility through cost-sharing arrangements,  but
under  Superfund  and other  similar laws ICRR can be held jointly and severally
liable for all environmental costs associated with such sites.

         ICRR is aware of  approximately  25  contaminated  sites at which it is
probably liable for some portion of any required clean-up.  Of these, 17 involve
contamination  primarily by diesel fuel which can be remediated without material
cost.  Five other sites are expected to require more than $1 million in clean-up
costs.  At four of these sites  other  parties are  expected to  contribute  the
majority of the costs incurred.  ICRR paid approximately $2.8 million toward the
investigation  and  remediation  at all sites in 1996, and  anticipates  similar
expenditures annually.

         For all known sites of environmental  contamination  where ICRR loss or
liability is probable, ICRR has recorded an estimated liability at the time when
a  reasonable  estimate  of  remediation  cost and ICRR  liability  can first be
determined.  Adjustments  to initial  estimates are recorded as necessary  based
upon additional  information  developed in subsequent periods.  Estimates of the
ICRR`s potential  financial  exposure for environmental  claims or incidents are
necessarily  imprecise  because of the  difficulty of determining in advance the
nature and extent of contamination,  the varying costs of alternative methods of
remediation,  the regulatory  clean-up standards which will be applied,  and the
appropriate  allocation of liability  among  multiple  responsible  parties.  At
December 31, 1996,  ICRR estimated the probable range of its liability to be $17
million to $53 million,  and in accordance with the provisions of SFAS No. 5 had
a reserve of $17 million  for  environmental  contingencies.  This amount is not
reduced for potential insurance recoveries or third-party contribution.


                                       26

<PAGE>



         The risk of incurring  environmental  liability in connection with both
past and current  activities  is inherent  in railroad  operations.  Decades-old
railroad  housekeeping  practices were not always  consistent with  contemporary
standards,   historically  ICRR  leased  substantial   amounts  of  property  to
industrial  tenants,  and ICRR continues to haul hazardous  materials  which are
subject to  occasional  accidental  release.  Because the ultimate cost of known
contaminated  sites cannot be definitively  established  and because  additional
contaminated sites yet unknown may be discovered or future operations may result
in  accidental  releases,  no  assurance  can be given  that ICRR will not incur
material  environmental  liabilities  in  the  future.  However,  based  on  its
assessments of the facts and circumstances now known,  management  believes that
it has  recorded  adequate  reserves for known  liabilities  and does not expect
future  environmental  charges or  expenditures,  based on these known facts and
circumstances,  to have a material adverse effect on ICRR`s financial  position,
results of operations, cash flow or liquidity.

Recent Accounting Pronouncements

         Statement of Financial  Accounting  Standards No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
("SFAS No. 125"), issued by the Financial Accounting Standards Board in 1996 and
effective for 1997,  provides  accounting and reporting  standards for transfers
and  servicing  of  financial  assets and  extinguishment  of  liabilities.  The
accounting for the ICRR's sales of accounts receivable  agreement is impacted by
this standard.  As a result,  the agreement is expected to be modified to comply
with the SFAS No. 125  requirements so that the accounting and reporting for the
sale of the ICRR's accounts receivable will remain unchanged.


Item 8.  Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements on page 31 of this Report.


Item 9.  Changes in and Disagreement with Accountants in Accounting
            Financial Disclosures
                                      NONE

                                       27

<PAGE>





                                    PART III

Items 10, 11, 12 and 13

         Intentionally   omitted.   See  the  Index  page  of  this  Report  for
explanation.


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)    1.   Financial Statements:

            See Index to  Consolidated  Financial  Statements on page 31 of this
            Report.

       2.   Financial Statement Schedules:

            See  Index to  Financial  Statement  Schedules  on page F-27 of this
            Report.

       3.   Exhibits:

            See items marked with "*" on the Exhibit Index beginning on page E-1
            of this Report.  Items so marked  identify  management  contracts or
            compensatory plans or arrangements as required by Item 14.

(b)    1.   Reports on Form 8-K:

            During the  fourth  quarter  of 1996 the  Registrant  filed with the
            Securities and Exchange Commission the following reports on Form 8-K
            on the dates indicated to report the events described:

            On  December  4,  1996,  a  current  report  on Form  8-K was  filed
            announcing   the   signing   of  an   agreement   with  the   United
            Transportation  Union subject to a January  ratification vote by UTU
            membership.

(c)         Exhibits:

            The  response to this  portion of Item 14 is submitted as a separate
            section of this Report. See Exhibit Index beginning on page E-1.

(d)         Financial Statement Schedules:

            The  response to this  portion of Item 14 is submitted as a separate
section of this Report.

                                       28

<PAGE>



                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned, there unto duly authorized.

                                         ILLINOIS CENTRAL RAILROAD COMPANY

                                         By:  /s/ DALE W. PHILLIPS
                                                  Dale W. Phillips
                                     Vice President and Chief Financial Officer
                              Date: March 19, 1997

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report has been signed by the  following  persons in the  capacities  and on the
dates indicated.

         Signature                      Title(s)                  Date

/s/ GILBERT H. LAMPHERE    Chairman of the Board and Director     March 19, 1997
------------------------
    Gilbert H. Lamphere

/s/ E. HUNTER HARRISON     President and Chief Executive Officer  March 19, 1997
    E. Hunter Harrison    (principal executive officer), Director

/s/ DALE W. PHILLIPS               Vice President                 March 19, 1997
--------------------
    Dale W. Phillips          and Chief Financial Officer
                             (principal financial officer)

/s/ JOHN V. MULVANEY                Controller                    March 19, 1997
--------------------
    John V. Mulvaney       (principal accounting officer)

/s/  RONALD A. LANE                  Director                     March 19, 1997
-------------------
     Ronald A. Lane

/s/ JOHN D. MCPHERSON                Director                     March 19, 1997
---------------------
    John D. McPherson

/s/ DONALD H. SKELTON                Director                     March 19, 1997
---------------------
    Donald H. Skelton



                                       29

<PAGE>











                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES








                                  F O R M 10-K



                              FINANCIAL STATEMENTS

                         SUBMITTED IN RESPONSE TO ITEM 8

                                       30

<PAGE>








                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Report of Independent Public Accountants................................... F-1

Consolidated Statements of Income for the three years ended
  December 31, 1996........................................................ F-2

Consolidated Balance Sheets at December 31, 1996 and 1995.................. F-3

Consolidated Statements of Cash Flows for the three years ended
  December 31, 1996........................................................ F-4

Consolidated Statements of Stockholder's Equity and Retained
  Income for the three years ended December 31, 1996....................... F-5

Notes to Consolidated Financial Statements for the three years
  ended December 31, 1996.................................................. F-6

                                       31

<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Illinois Central Railroad Company:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Illinois Central  Railroad Company (a Delaware  corporation) and subsidiaries as
of  December  31,  1996 and 1995,  and the related  consolidated  statements  of
income, cash flows and stockholder's  equity and retained income for each of the
three years in the period ended December 31, 1996.  These  financial  statements
and the  schedules  referred to below are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedules based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the financial  position of Illinois Central
Railroad  Company and  subsidiaries  as of December  31, 1996 and 1995,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.

         Our audits were made for the purpose of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedules  listed in the index to
financial  statement  schedules  herein are  presented for purposes of complying
with the  Securities  and  Exchange  Commission's  rules and are not part of the
basic financial statements.  These schedules have been subjected to the auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth  therein in  relation  to the basic  financial  statements  taken as a
whole.


                                                           ARTHUR ANDERSEN LLP


Chicago, Illinois
January 20, 1997

                                       F1

<PAGE>


                    ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
                       Consolidated Statements of Income
                                ($ in millions)



                                                  Years Ended December 31,
                                                 1996       1995       1994
     Revenues                                  $617.2    $ 645.3    $ 595.3

     Operating expenses:
        Labor and fringe benefits               181.9      194.8      184.2
        Leases and car hire                      56.7       58.8       59.3
        Diesel fuel                              34.6       33.2       31.5
        Materials and supplies                   31.2       35.0       35.6
        Depreciation and amortization            31.0       30.9       25.0
        Casualty, insurance and losses           11.4       17.4       23.7
        Other taxes                              16.9       18.2       17.6
        Other                                    34.0       35.1       26.0
     Operating expenses                         397.7      423.4      402.9

     Operating income                           219.5      221.9      192.4

     Other income, net                            9.9        2.7        4.5
     Interest expense, net                      (26.5)     (26.3)     (26.0)

     Income before income taxes and extra-
      ordinary item                             202.9      198.3      170.9
     Provision for income taxes                  76.3       67.1       58.2

     Income before extraordinary item           126.6      131.2      112.7
     Extraordinary item, net                        -      (11.4)         -
     Net income                                $126.6    $ 119.8    $ 112.7


     The  following  notes are an integral  part of the  consolidated  financial
statements.

                                       F2

<PAGE>


                   ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
                          Consolidated Balance Sheets
                                ($ in millions)

                                                   December 31,     December 31,
                       ASSETS                        1996                1995
  Current assets:
       Cash and temporary cash investment      $    46.3            $     3.0
       Receivables, net of allowance for
         doubtful accounts of $1.3 in
         1996 and $2.0 in 1995                      84.4                 79.3
       Loans to affiliates                          14.9                 11.7
       Materials and supplies, at average cost      17.3                 14.9
       Assets held for disposition                     -                  7.7
       Deferred income taxes - current              18.1                 19.1
       Other current assets                          7.8                  2.5
            Total current assets                   188.8                138.2

  Investments                                       11.7                 13.5

  Loans to affiliates                              138.2                 26.9

  Properties:
     Transportation:
        Road and structures, including land      1,118.0              1,052.1
        Equipment                                  165.2                143.5
     Other, principally land                        41.5                 41.0
        Total properties                         1,324.7              1,236.6
     Accumulated depreciation                      (38.4)               (37.1)
        Net properties                           1,286.3              1,199.5

  Other assets                                      20.9                 14.7
            Total assets                       $ 1,645.9            $ 1,392.8

                  LIABILITIES AND STOCKHOLDER'S EQUITY
  Current liabilities:
       Current maturities of long-term debt    $     2.8            $    10.7
       Accounts payable                             56.3                 52.1
       Dividends payable                               -                    -
       Income taxes payable                          1.2                  6.9
       Casualty and freight claims                  20.9                 24.9
       Employee compensation and vacations          18.4                 16.9
       Taxes other than income taxes                15.4                 16.3
       Accrued redundancy reserves                   4.3                  4.3
       Other accrued expenses                       72.6                 61.7
            Total current liabilities              191.9                193.8

  Long-term debt                                   590.3                373.9
  Deferred income taxes                            263.5                235.7
  Other liabilities and reserves                   117.5                124.4

  Contingencies and commitments (Note 13)

  Stockholder's equity:
       Common stock authorized, issued and outstanding
         100 shares, $1 par value                      -                    -
       Additional paid-in capital                  129.6                129.6
       Retained income                             353.1                335.4
           Total stockholder's equity              482.7                465.0
           Total liabilities and stockhol      $ 1,645.9            $ 1,392.8
  The  following  notes  are an  integral  part  of the  consolidated  financial
statements.

                                       F3

<PAGE>


                  ILLINOIS CENTRAL RAILROAD COMPANY AND SUBS
                     Consolidated Statements of Cash Flows
                                ($ in millions)


                                                    Years Ended December 31,
                                                  1996       1995     1994
                                                  ----       ----     ----
Cash flows from operating activities :
   Net income                                 $  126.6   $  119.8 $  112.7
   Reconciliation of net income to net cash
      provided by (used for) operating
      activities :
         Extraordinary item, net                     -       11.4        -
         Depreciation and amortization            31.0       30.9     25.0
         Deferred income taxes                    31.5       24.5     14.3
         Equity in undistributed earnings of
            affiliates, net of dividends
            received                              (0.5)      (0.8)    (0.4)
         Net gains on sales of real estate        (1.6)      (0.1)    (2.0)
         Cash changes in working capital          (9.0)      (8.3)    51.0
         Changes in other assets                  (6.4)      (2.0)    (4.3)
         Changes in other liabilities and
            reserves                              (6.6)      (7.2)    (0.7)
            Net cash provided by operating
            activities                           165.0      168.2    195.6

Cash flows from investing activities :
   Additions to properties                      (118.9)     (97.6)   (86.4)
   Proceeds from sales of real estate              3.0        2.5      3.8
   Proceeds from equipment sales                   3.0        2.9      4.4
   Proceeds from sales of investments              2.3        0.7      1.6
   Loans to affiliated company                  (114.5)     (26.9)       -
   Other                                          (1.0)      (4.4)    (0.4)
      Net cash (used for) investing
      activities                                (226.1)    (122.8)   (77.0)

Cash flows from financing activities :
   Proceeds from issuance of debt                255.0      250.0    113.0
   Principal payments on debt                     (9.6)    (238.7)  (159.2)
   Net proceeds (payments)
    -  Commercial Paper                          (37.0)      42.0    (23.1)
   Dividends paid                               (103.3)    (107.7)   (42.5)
   Purchase of subsidiary's common stock          (0.7)      (0.2)    (2.7)
    Net cash provided by (used for)
    financing activities                         104.4      (54.6)  (114.5)
Changes in cash and temporary cash
    investments                                   43.3       (9.2)         4.1
Cash and temporary cash investments
    at beginning of year                           3.0       12.2          8.1
Cash and temporary cash investments at
    end of  year                              $   46.3   $    3.0     $   12.2
Supplemental  disclosure  of cash flow
    information  :
Cash paid during the year for:
      Interest (net of amount capitalized)    $   28.5   $   30.8     $   26.8
      Income taxes                            $   53.2   $   31.0     $   46.9
The  following  notes  are  an  integral  part  of  the  consolidated  financial
statements.

                                       F4

<PAGE>


               ILLINOIS CENTRAL  RAILROAD COMPANY AND SUBSIDIARIES  Consolidated
       Statements of Stockholder's Equity and Retained Income


                              Shares                 Equity ($ in millions)
                              ------                 ----------------------
                                                                      Total
                                                    Additional        Stock-
                              Common   Common    Paid-in   Retained   holder's
                              Share    Stock     Capital   Income     Equity
                              -----    -----     -------   ------     ------

  Balance December 31, 1993     100   $     -   $ 128.6   $ 238.2   $ 366.8

  Capital contribution                              0.5                 0.5

  Dividends                                                 (87.6)    (87.6)

  Net income                                                112.7     112.7

  Balance December 31, 1994     100         -     129.1     263.3     392.4

  Capital contribution                              0.5                 0.5

  Dividends                                                 (47.7)    (47.7)

  Net income                                                119.8     119.8

  Balance December 31, 1995     100         -     129.6     335.4     465.0

  Dividends                                                (108.9)   (108.9)

  Net income                                                126.6     126.6

  Balance December 31, 1996     100   $     -   $ 129.6   $ 353.1   $ 482.7



  The following notes are an integral part of the consolidated financial sta

                                       F5

<PAGE>


                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


1.       ICRR

         Illinois  Central   Corporation   ("IC"),   a  holding   company,   was
incorporated   under  the  laws  of  Delaware.   IC,  through  its  wholly-owned
subsidiaries,  including the Illinois  Central  Railroad  Company  ("ICRR"),  is
principally engaged in the rail freight transportation  business.  ICRR operates
2,700 miles of main line track between Chicago and the Gulf of Mexico, primarily
transporting  chemicals,  grain and milled  grain,  coal,  paper and  intermodal
commodities.


2.       Summary of Significant Accounting Policies

         Principles of Consolidation

         The consolidated  financial statements include the accounts of the ICRR
and its  subsidiaries.  Significant  investments  in  affiliated  companies  are
accounted for by the equity method.  Transactions between consolidated companies
have been eliminated in the accompanying consolidated financial statements.

         Properties

         Depreciation  is  computed  by the  straight-line  method and  includes
depreciation on properties under capital leases.  ICRR uses the composite method
of depreciation for track structure,  other road property, and equipment. In the
case of routine  retirements,  removal cost less salvage  recovery is charged to
accumulated  depreciation.  Expenditures for maintenance and repairs are charged
to operating expense.

         The approximate ranges of annual  depreciation rates for major property
classifications are as follows:

                  Road properties.............................1% - 8%
                  Transportation equipment....................1% - 7%

         ICRR's  rates  were  approved  by  the   predecessor   of  the  Surface
Transportation  Board  ("STB"),  an  independent  agency  of the  Department  of
transportation.
                                      F-6
<PAGE>

                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         Revenues

         Revenues  are  recognized  based  on  services  performed  and  include
estimated  amounts  relating to movements  in progress for which the  settlement
process is not complete. Estimated revenue amounts for movements in progress are
not significant.

         Income Taxes

         Deferred  income  taxes are  accounted  for on the asset and  liability
method by  applying  enacted  statutory  tax rates to  differences  between  the
financial   statement   carrying  amounts  and  the  tax  bases  of  assets  and
liabilities.  The resulting  deferred tax liabilities and assets represent taxes
to be paid or  collected in the future when the related  assets and  liabilities
are recovered and settled, respectively.

         Cash and Temporary Cash Investments

         Cash in excess of operating  requirements  is invested in certain funds
having original maturities of three months or less. These investments are stated
at cost, which approximates market value.

         Income Per Share

         Income per  common  share has been  omitted  as ICRR is a  wholly-owned
subsidiary of IC.

         Derivative Financial Instruments

         ICRR has only limited involvement with derivative financial instruments
and does not use them for trading purposes. ICRR has entered into various diesel
fuel collar agreements with the objective of mitigating significant fluctuations
in fuel prices. Premiums paid for the purchase of these agreements are amortized
to fuel  expense  over the terms of the  agreements.  Unamortized  premiums  are
included in Other Assets in the Consolidated Balance Sheets.  Amounts receivable
or payable under the collar  agreements are accrued as increases or decreases to
Diesel Fuel Expense. See Note 6.

         Casualty Claims

         ICRR  accrues  for  injury  and  damage  claims  based  on  actuarially
determined  estimates of the ultimate costs  associated with asserted claims and
claims  incurred but not reported.  As a result of significant  improvements  in
safety performance and enhancements in claim and settlement approaches, ICRR has
experienced  continuing  reductions in its final claim settlement amounts. It is
reasonably  possible that future  actuarial  valuations will reflect  additional
improvements that could result in a reduction in the near term to casualty costs
and related expenses.


                                       F-7

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         Stock-Based Compensation

         ICRR has  elected  to adopt  SFAS  No.  123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS No. 123"), for disclosure  purposes only. 
ICRR accounts for compensation  under its Long-Term  Incentive Plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 17.

         Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

         Reclassifications

         Certain items relating to prior years have been reclassified to conform
to the presentation in the current year.

3.       Extraordinary Item

         In 1995,  ICRR prepaid the holders of its $160 million  Senior Notes at
face value plus  accrued  interest  and a  prepayment  penalty.  The  prepayment
resulted in an extraordinary loss of $18.4 million, $11.4 million after-tax. The
loss resulted from the premium paid, the write-off of unamortized financing fees
and costs associated with the prepayment. The monies used to fund the prepayment
were provided by commercial  paper,  the net proceeds of the 7.75% Notes and $40
million from existing lines of credit. See Note 8.

                                       F-8

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



4.       Other Income (Expense), Net

         Other Income (Expense), Net consisted of the following ($ in millions):

                                                     Years Ended December 31,
                                                   1996       1995       1994
                                                   ----       ----       ----

Rental income, net..............................   $2.3       $3.5      $ 3.3
Net gains  (losses) on sales of real estate.....    1.6        (.1)       2.0
Equity in undistributed
   earnings of affiliates.......................     .8         .9         .7
Sales of accounts receivable   (see Note 9)....    (2.9)      (3.2)      (2.2)
Sale of RAIL (see below)........................    7.3        -          -
Other, net......................................     .8        1.6         .7
                                                   ----     ------      -----
   Other Income (Expense), Net..................   $9.9     $  2.7      $ 4.5
                                                   ====     ======      =====

          On October 3, 1996,  ICRR sold its  investment in an industry  captive
insurance company.

5.       Supplemental Cash Flow Information

         Cash changes in  components  of working  capital,  exclusive of Current
Maturities of Long-Term Debt,  included in the  Consolidated  Statements of Cash
Flows were as follows ($ in millions):


                                                Years Ended December 31,
                                         1996           1995           1994
                                         ----           ----           ----

Receivables, net...................... $ (5.1)        $(14.1)          $41.1
Materials and supplies................   (2.4)            .8             4.4
Other current assets..................   (5.3)            .6              .4
Accounts payable......................    4.9           (3.5)            6.6
Income taxes payable..................   (8.4)          13.3            (3.0)
Accrued redundancy reserve............      -           (2.5)              -
Other current liabilities.............    7.3           (2.9)            1.5
                                       --------      --------          -----
Cash Changes in Working Capital....... $ (9.0)       $  (8.3)          $51.0
                                       =======       =========         =====

        ICRR entered into  capital  leases of $7.1 million  covering 328 freight
cars in 1995 and $24.7 million covering 65 locomotives and 1,623 freight cars in
1994. See Note 7 for the present value of the minimum lease payments.


                                       F-9

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


6.      Materials and Supplies

        Materials and Supplies, valued using the average cost method, consist of
track material, switches, car and locomotive parts and fuel.

        As of  December  31,  1996,  ICRR was party to one  diesel  fuel  collar
agreement  under which the Company  receives or makes monthly  payments based on
the monthly average near-by  contract price for Heating Oil #2 traded on the New
York Mercantile Exchange (the "Contract Price"),  which was $.722 per gallon for
December 1996.  Under the agreement,  ICRR receives or makes monthly payments on
800,000 notional gallons based on the excess or deficiency of the Contract Price
over or under $.55 or $.43 per gallon, respectively.

7.      Leases

        As of December  31,  1996,  ICRR leased 6,325 of its cars and 119 of its
locomotives.  These leases  generally have original terms of 15 years and expire
between 1997 and 2003. Under the terms of the majority of its lease  agreements,
ICRR has the right of first  refusal to purchase,  at the end of the lease term,
certain cars and  locomotives  at or below fair market  value.  ICRR also leases
office facilities, computer equipment and vehicles.

        Net  obligations  under  capital  leases at December  31, 1996 and 1995,
included  in the  Consolidated  Balance  Sheets  were  $14.4  million  and $23.2
million,  respectively.  The gross  assets under  capitalized  leases were $30.0
million and $40.8 million at December 31, 1996 and 1995,  respectively,  and are
included in Properties in the Consolidated Balance Sheets.


                                      F-10

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         At  December  31,  1996,  minimum  rental  payments  under  capital and
operating leases that have initial or remaining  noncancellable  terms in excess
of one year were as follows ($ in millions):

                                           Capital         Operating
                                           Leases            Leases

1997.....................................  $ 3.7            $ 38.2
1998.....................................    3.3              34.7
1999.....................................    3.3              30.6
2000.....................................    2.7              16.0
2001.....................................    2.6              14.3
Thereafter...............................    3.2              65.9
                                          -------         --------
    Total minimum lease payments.........   18.8            $199.7
                                                            ======

Less: Imputed interest...................    4.4
                                         -------
    Present value of minimum payments....  $14.4
                                           =====

        Total  rent  expense  applicable  to  noncancellable   operating  leases
amounted to $38.8  million in 1996,  $32.4  million in 1995 and $48.8 million in
1994.  Most of the leases  provide  that the  Company  pay  taxes,  maintenance,
insurance and certain other operating expenses.

8.      Long-Term Debt and Interest Expense

        Long-Term  Debt  at  December  31,  consisted  of  the  following  ($ in
millions):

                                                               1996        1995
                                                               ----        ----

Debentures and other debt, due 1997 to 2056, 4.5%
  to 10.89%....                                             $   9.9     $  10.2
Debentures, due 2096, 7.7%................................    125.0         -
Commercial Paper, at average interest rate 5.61% in
  1996 and 6.19% in 1995.......  ......................        20.0        57.0
Notes, due 2003, 6.75%....................................    100.0       100.0
Notes, due 2005, 7.75%....................................    100.0       100.0
Medium term notes, due 1998 to 2007, 6.27% to 7.12%.......    230.0       100.0
Capitalized leases (see Note 7)...........................     11.9        12.8
Unamortized discount, net .......................... .......   (6.5)       (6.1)
                                                             -------     ------

             Total Long-Term Debt.........................   $590.3      $373.9
                                                             ======      ======

        At December 31, 1996, the aggregate  annual  maturities and sinking fund
requirements  for debt payments for 1997 through 2002 and  thereafter  were $2.8
million, $42.5 million, $32.5 million, $32.1

                                      F-11

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


million,  $102.2  million,  $1.7 million and $379.3 million,  respectively.  The
weighted-average  interest  rate for 1996 and 1995 on total debt  excluding  the
effect  of  discounts,  premiums  and  related  amortization  was 7.1% and 8.0%,
respectively.

        In December 1996, ICRR issued $125 million aggregate amount of 100-year,
7.7%  debentures  due September 15, 2096.  These bonds may not be redeemed until
2026 and then only at a premium which declines to par in 2056.

        In 1995,  ICRR prepaid the holders of its $160  million  Senior Notes at
face value plus accrued  interest and a prepayment  penalty.  The monies used to
fund the prepayment were provided by commercial  paper,  the net proceeds of the
$100 million  7.75%  10-year  notes due May 2005 and $40 million  from  existing
lines of credit.  In connection with the  prepayment,  ICRR amended and restated
its revolver with its bank lending group (the "Revolver").

        ICRR has a commercial  paper program whereby a total of $200 million can
be issued and  outstanding at any one time. The commercial  paper is rated A2 by
S&P, P2 by Moody's and F2 by Fitch and is supported by the Revolver.  ICRR views
commercial paper as a significant  long-term funding source and intends to issue
replacement debt as maturities occur. Therefore,  the $20 million outstanding at
December 31, 1996, has been classified as long-term.

        ICRR has a $250  million  Revolver  that  expires in 2001.  ICRR pays an
annual fee of 15 basis points on the Revolver  and the  Eurodollar  offered rate
plus 22.5 basis  points for any  borrowings.  The Revolver may be used as backup
for commercial paper and for general corporate purposes. The available amount is
reduced by the outstanding amount of commercial paper borrowings and any letters
of credit  issued on behalf of ICRR under the  facility.  No  amounts  have been
drawn under the Revolver. At December 31, 1996, the Revolver was limited to $230
million because $20 million in commercial paper was outstanding.

        Various  borrowings  of ICRR are governed by  agreements  which  contain
certain  affirmative  and negative  covenants  customary for  facilities of this
nature   including   restrictions  on  additional   indebtedness,   investments,
guarantees, liens, distributions,  sales and leasebacks, and sales of assets and
capital  stock.  Some also  require  satisfaction  of certain  financial  tests,
including a leverage  ratio,  an earnings  before interest and taxes to interest
charges ratio, and minimum  consolidated  tangible net worth  requirements.  See
Note 12.


                                      F-12

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        Interest Expense, Net consisted of the following ($ in millions):

                                                 Years Ended December 31,
                                            1996            1995         1994
                                            ----            ----         ----

Interest expense........................   $34.3          $30.4        $28.9
Less:
   Interest capitalized ................     1.7            1.3          1.4
   Interest income......................     6.1            2.8          1.5
                                          ------        -------       ------
Interest Expense, Net...................   $26.5          $26.3        $26.0
                                           =====          =====        =====


9.      Sales of Accounts Receivable

        In 1994,  ICRR  entered  into a revolving  agreement  to sell  undivided
percentage interests in certain of its accounts receivable,  with recourse, to a
financial institution.  The agreement allows for sales of accounts receivable up
to a  maximum  of $50  million  at any one  time.  ICRR  services  the  accounts
receivable sold under the agreement and retains the same exposure to credit loss
as existed prior to the sale.  During June 1995,  the agreement was extended one
year and now expires in June 1998.  At December 31,  1996,  $48 million had been
sold pursuant to the  agreement.  Costs related to the agreement  fluctuate with
changes in prevailing  interest rates.  These costs, which are included in Other
Income  (Expense),  Net,  were $2.9  million,  $3.2 million and $2.2 million for
1996, 1995 and 1994, respectively.

        Statement of Financial  Accounting  Standards  No. 125 ("SFAS No. 125"),
issued by the  Financial  Accounting  Standards  Board in 1996 and effective for
1997, provides accounting and reporting standards for transfers and servicing of
financial  assets and  extinguishment  of  liabilities.  The  accounting for the
ICRR's sales of accounts receivable agreement is impacted by this standard. As a
result, the agreement is expected to be modified to comply with the SFAS No. 125
requirements  so that the  accounting  and  reporting for the sale of the ICRR's
accounts receivable will remain unchanged.

10.     Benefit Plans

        All employees of ICRR are covered under the Railroad  Retirement  System
instead   of  Social   Security.   Additionally,   various   retirement   plans,
postemployment benefits and postretirement benefits are provided.

        Retirement Plans.

        ICRR has two qualified plans  permitting  participants to make "pre-tax"
contributions  of their salary up to Internal  Revenue Code limitations and each
contains a company match  provision.  The union plan, which started in mid-1995,
allows union employees  covered by local contracts to participate.  ICRR matches
25% of the first 4% of employee contributions. The management plan's

                                      F-13

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


matching  provisions are 50% of the first 6% of salary deferral.  The management
plan  also  contains  a  separate  defined  contribution  portion  of 2% of each
employee's  salary.  Expenses  related  to both plans  were $1.2  million,  $1.1
million,  and $1.0  million  in  1996,  1995 and  1994,  respectively.  All ICRR
contributions are fully vested upon contribution.

        ICRR also has a supplemental  executive  retirement  plan ("SERP") which
covers officers and certain other management employees.  The SERP provides for a
monthly  benefit equal to 35% of a participant's  final average  compensation as
defined in the plan. The monthly  benefit is subject to offsets such as employer
contributions to the 401(k) plan. The plan was adopted in 1994. The cost was not
material in the three years ended December 31, 1996.


        Salary  Deferral Plans. In addition to the 401(k) plan, all officers and
certain other  management  employees may elect to defer up to 50% of base salary
and 100% of  annual  bonus.  Participant  deferrals  are fully  vested  and earn
interest at a specified,  variable rate. Approximately $1.1 million, $.5 million
and $.3 million were deferred in 1996, 1995 and 1994 respectively.

        Unfunded  Plan.  ICRR has an unfunded  plan  whereby 10% of an officer's
combined  salary and bonus in excess of a wage offset factor  ($104,500 in 1996)
is accrued and earns interest. Amounts accrued are paid when the employee leaves
ICRR,  normally at  retirement.  Expenses  for this plan were $.4  million,  $.4
million and $.3 million in 1996, 1995 and 1994, respectively.

        Postemployment  Benefit  Plans.  ICRR  provides  certain  postemployment
benefits such as long-term  salary  continuation  and waiver of medical and life
insurance co-payments while on long-term disability.

        Postretirement  Plans. In addition to retirement  plans,  ICRR has three
benefit  plans  which  provide  some  postretirement  benefits  to  most  former
full-time  salaried employees and selected former  union-represented  employees.
The  medical  plan  for  salaried   retirees  is   contributory,   with  retiree
contributions  adjusted annually if expected medical cost inflation rate exceeds
9.5%,  and  contains  other  cost  sharing  features  such  as  deductibles  and
co-payments. ICRR's contribution will be fixed at the 1999 year end rate for all
subsequent  years.  Salaried retirees are covered by a life insurance plan which
provides a nominal death benefit and is  non-contributory.  The medical plan for
locomotive  engineers who retired under a special  early  retirement  program in
1987 provides  non-contributory  coverage  until age 65. All benefits under this
plan  terminate in 1998.  There are no plan assets and ICRR funds these benefits
as claims are paid.


                                      F-14

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        The  accumulated  postretirement  benefit  obligations  ("APBO")  of the
postretirement plans were as follows ($ in millions):

                                                  December 31,
                                                   1996            1995
                                       Medical  Life       Total    Total

Accumulated postretirement benefit
 obligation:
        Retirees....................   $13.0    2.1      $15.1     $16.4
  Fully eligible active
   plan participants    ............      .7      -         .7        .9
  Other active plan participants....     3.3      -        3.3       3.4
                                       -----    ---      -----     -----
            Total APBO..............   $17.0    2.1       19.1      20.7
                                       ======   ===      =====      ====

  Unrecognized net gain.............                      18.3      18.4
                                                          ----      ----
  Accrued liability for
    postretirement benefits.........                     $37.4     $39.1
                                                         =====     =====

The   weighted-average   discount  rate  used  in  determining  the  accumulated
postretirement benefit obligation was 7.25% at December 31, 1995. As a result of
the change in general  interest rates on high quality fixed rate  investments in
1996,  the ICRR  increased  the  weighted-average  discount  rate to 7.75% as of
December 31, 1996.  The change in rates  resulted in  approximately  $.7 million
actuarial  gain.  The  actuarial  gains and losses along with actual  experience
gains,  primarily fewer claims and lower medical rate  inflation,  resulted in a
total $18.3 million unrecognized net gain as of December 31, 1996. In accordance
with  SFAS  No.  106,  the  excess  gain  is  subject  to  $1.2  million  annual
amortization  based on an amortization  period of  approximately  13 years.  The
components of the net periodic  postretirement  benefits cost were as follows ($
in millions):

                                                 Years Ending December 31,
                                                  1996              1995
                                                 -----              -----
Service costs..........................         $  .1            $    .1
Interest costs.........................           1.4                1.7
Net amortization of excess gain........          (1.2)              (1.2)
                                                ------            ------
Net periodic postretirement
  benefit costs........................         $  .3            $    .6
                                                =====            =======

         The weighted-average  annual assumed rate of increase in the per capita
cost of covered  benefits  (e.g.,  health  care cost trend rate) for the medical
plans is 11.0% for 1997 and is assumed to  decrease  gradually  to 6.25% by 2002
and remain at that level thereafter.  The health care cost trend rate assumption
normally has a significant  effect on the amounts  reported;  however,  the plan
limits annual  inflation for ICRR's  portion of such costs to 9.5% each year and
caps ICRR's contribution at the actual 1999 level. Therefore, an increase in the
assumed health care cost trend rates by one percentage  point in each year would
have no impact on ICRR's accumulated postretirement benefit

                                      F-15

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


obligation  for the medical  plans as of December 31, 1996,  or the aggregate of
the service and interest cost components of net periodic  postretirement benefit
expense in future years.

11.     Provision for Income Taxes

        The Provision for Income Taxes for  continuing  operations  consisted of
the following ($ in millions):

                                                 Years Ended December 31,
                                              1996           1995         1994
                                              ----           ----         ----
Current income tax:
  Federal.................................   $39.9          $38.1         $39.9
  State...................................     4.9            4.5           4.0
Deferred income taxes.....................    31.5           24.5          14.3
                                             -----          -----        ------
Provision  for Income Taxes...............   $76.3          $67.1         $58.2
                                             =====          =====         =====

         The effective  income tax rates for the years ended  December 31, 1996,
1995 and  1994,  were  38%,  34% and 34%,  respectively.  See Note 3 for the tax
benefits associated with the 1995 extraordinary loss.

         At December 31, 1996, ICRR for tax or financial  reporting purposes had
no Federal net operating loss carryovers.

         In 1996,  1995 and 1994 tax benefits of $1.8 million,  $4.3 million and
$5.0 million, respectively, were recorded to reflect the favorable resolution of
prior-period tax issues.

         The items  which gave rise to  differences  between  the  income  taxes
provided for continuing operations in the Consolidated  Statements of Income and
the income  taxes  computed at the  statutory  rate are  summarized  below ($ in
millions):

                                             Years Ended December 31,
                                      1996              1995           1994
                                      ----              ----           ----

Expected tax expense computed
  at statutory rate.............  $71.0     35%    $69.4    35%   $59.8    35%
Dividends received exclusion....    (.1)     -       (.1)    -      (.3)    -
State income taxes, net
  of Federal tax effect.........    5.9      3       5.4     3      3.6     2
Favorable resolution of
  prior period tax issues.......   (1.8)    (1)     (4.3)   (2)    (5.0)   (3)
Other items, net................    1.3      1      (3.3)   (2)      .1     -
                                   -----    ---     -----   ---    ----    ----
Provision for Income Taxes......  $76.3     38%     $67.1   34%   $58.2    34%
                                  =====     ===     =====   ===   =====    ===


                                      F-16

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         Temporary differences between book and tax income arise because the tax
laws  require that  certain  items of income and expense be treated  differently
than under  generally  accepted  accounting  principles.  As a result,  the book
provisions  for taxes  differ from the actual  taxes  reported on the income tax
returns.  The net results of such  differences  are included in Deferred  Income
Taxes in the Consolidated Balance Sheets.


         Deferred Income Taxes consisted of the following ($ in millions):

                                                             December 31,
                                                          1996          1995
                                                          ----          ----

Deferred tax assets................................    $  71.7      $   79.5
Less: Valuation allowance..........................       (1.5)         (1.8)
                                                       --------     ---------
Deferred tax assets,
  net of valuation allowance.......................       70.2          77.7
Deferred tax liabilities...........................     (315.6)       (294.3)
                                                       --------      --------
Deferred Income Taxes..............................    $(245.4)     $ (216.6)
                                                       ========      ========

         The  valuation  allowance  is comprised of the portion of state tax net
operating  loss  carryforwards  expected to expire  before they are utilized and
non-deductible  expenses  incurred  with the  previous  merger  of  wholly-owned
subsidiaries.

         Major types of deferred  tax assets are:  reserves not yet deducted for
tax purposes ($60.9 million) and safe harbor leases ($10.8 million). Major types
of deferred tax liabilities are: accelerated depreciation ($288.5 million), land
basis differences ($10.8 million) and debt marked to market ($2.1 million).

         IC and its  subsidiaries  have a tax  sharing  agreement  whereby  each
subsidiary's  federal income tax and state income tax liabilities are determined
on a  separate  company  income  tax  basis as if it were  not a member  of IC's
consolidated  group,  with  no  benefit  for  net  operating  losses  or  credit
carryovers from prior years.


                                      F-17

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



12.     Equity and Restrictions on Dividends

        ICRR paid dividends to IC of $103.2  million in 1996,  $107.7 million in
1995 and $42.5 million in 1994.  Certain  covenants of ICRR's  Revolver  require
specific levels of tangible net worth but not a specific  dividend  restriction.
At December 31, 1996,  ICRR's  tangible net worth exceeded the required level by
approximately  $26.9 million. In January 1997, ICRR declared and paid a dividend
of $17.8 million to IC.

        For the  years  ended  December  31,  1995  and  1994,  IC made  capital
contributions  of $.5 million and $.5 million,  respectively,  to ICRR which was
equivalent  to the vested  portion of the  restricted IC common stock granted to
various ICRR employees.

13.     Contingencies, Commitments and Concentration of Risks

        ICRR is self-insured for the first $5 million of each loss. ICRR carries
$245 million of liability insurance per occurrence,  subject to an annual cap of
$335 million in the  aggregate  for all losses.  This  coverage is considered by
ICRR's  management  to be adequate in light of ICRR's  safety  record and claims
experience.

        ICRR has guaranteed repayment of certain indebtedness of a jointly owned
company  aggregating  $7.8 million.  ICRR's  primary share is $1.0 million;  the
remainder is a primary obligation of other unrelated owner companies.

        There are various regulatory proceedings,  claims and litigation pending
against ICRR.  While the ultimate  amount of liability that may result cannot be
determined,  in  the  opinion  of  the  ICRR's  management,   based  on  present
information, adequate provisions for liabilities have been recorded.

        Environmental   Contingencies.   ICRR  is  aware  of   approximately  25
contaminated  sites at which  it is  probably  liable  for some  portion  of any
required clean up. Of these, 17 involve  contamination  primarily by diesel fuel
which can be remediated  without material cost. Five other sites are expected to
require  more than $1 million in  clean-up  costs.  At four of these sites other
parties are expected to contribute the majority of the costs incurred.

        For all known sites of  environmental  contamination  where ICRR loss or
liability is probable, ICRR has recorded an estimated liability at the time when
a  reasonable  estimate  of  remediation  cost and ICRR  liability  can first be
determined.  Adjustments  to initial  estimates are recorded as necessary  based
upon additional information developed in subsequent periods. Estimates of ICRR`s
potential   financial  exposure  for  environmental   claims  or  incidents  are
necessarily  imprecise  because of the  difficulty of determining in advance the
nature and extent of contamination,  the varying costs of alternative methods of
remediation,  the regulatory  clean-up standards which will be applied,  and the
appropriate  allocation of liability  among  multiple  responsible  parties.  At
December 31, 1996,  ICRR estimated the probable range of its liability to be $17
million to $53 million, and in accordance with the

                                       F-18

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


provisions  of  SFAS  No.  5 had a  reserve  of $17  million  for  environmental
contingencies.  This amount is not reduced for potential insurance recoveries or
third-party contributions.

        The risk of incurring  environmental  liability in connection  with both
past and current  activities  is inherent  in railroad  operations.  Decades-old
railroad  housekeeping  practices were not always  consistent with  contemporary
standards,   historically  ICRR  leased  substantial   amounts  of  property  to
industrial  tenants,  and ICRR continues to haul hazardous  materials  which are
subject to  occasional  accidental  release.  Because the ultimate cost of known
contaminated  sites cannot be definitively  established  and because  additional
contaminated sites yet unknown may be discovered or future operations may result
in  accidental  releases,  no  assurance  can be given  that ICRR will not incur
material  environmental  liabilities  in  the  future.  However,  based  on  its
assessments of the facts and circumstances now known,  management  believes that
it has  recorded  adequate  reserves for known  liabilities  and does not expect
future  environmental  charges or  expenditures,  based on these known facts and
circumstances,  to have a material adverse effect on ICRR`s financial  position,
results of operations, cash flow or liquidity.

14.     Disclosures about Fair Value of Financial Instruments

        The  following  methods and  assumptions  were used to estimate the fair
value of each class of  financial  instruments  for which it is  practicable  to
estimate that value:

        Cash and Temporary Cash  Investments.  The carrying amount  approximates
fair value because of the short  maturity of those  instruments.  Investments in
U.S.  corporate  demand notes of $43.6 million and $.2 million  included in Cash
and Temporary Cash  Investments as of December 31, 1996 and 1995,  respectively,
have been classified and accounted for as held to maturity securities.

        Investments.  ICRR  has  investments  of $5.9  million  in 1996 and $8.1
million in 1995 for which there are no quoted market prices.  These  investments
are in joint railroad  facilities,  railroad  terminal  associations,  switching
railroads  and  other  transportation  companies.  For  these  investments,  the
carrying  amount  is a  reasonable  estimate  of fair  value.  ICRR's  remaining
investments ($5.8 million in 1996 and $5.4 million in 1995) are accounted for by
the equity method.

        Loans to Affiliates.  See Note 15.

        Long-Term  Debt.  The fair value of ICRR's  long-term  debt is estimated
based on the  quoted  market  prices  for the same or  similar  issues or on the
current rates offered to ICRR for debt of the same remaining maturities.

        Derivative Financial  Instruments.  The fair value of diesel fuel collar
agreements is the  estimated  amount that ICRR would receive or pay to terminate
the agreements as of year end, taking into account the current credit worthiness
of the agreement counterparties.


                                      F-19

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        The estimated fair values of ICRR's financial instruments are as follows
($ in millions):

                                                     December 31,
                                                     ------------
                                              1996                 1995
                                              ----                 ----


                                     Carrying      Fair     Carrying      Fair
                                      Amount       Value      Amount      Value
                                      ------       -----      ------      -----

Cash and temporary cash investments  $ 46.3    $    59.2    $   3.0      $  3.0
Investments.........................    5.9          5.9        8.1         8.1
Fuel hedge..........................     .1           .1         -            -
Loans to affiliates - short-term....   14.9         14.9       11.7        11.7
Loans to affiliates - long-term.....  138.2        138.2       26.9        26.9
Debt................................ (593.1)      (586.6)    (384.6)     (420.5)

15.      Related Party Transactions and Intercompany Advances

         IC and its  subsidiaries  maximize the consolidated  group's  borrowing
power and minimize the group's  interest  costs. If an entity requires funds for
operations or capital  expenditures,  the lowest cost source  provides the cash.
The company that needs the funds pays interest at the borrowed rate with no mark
up or add-on fees.

         The amounts  outstanding at December 31,  consisted of the following ($
in millions):

                                            1996               1995
                                            ----               ----
Advance due from:
       -   CCPH                         $    4.4            $     -
       -   IC                                 -                11.7
Loans due from:
       -   IC Financial Services             1.5                  -
       -   IC Leasing III                    9.0                  -
                                       ---------           --------
Total Short-Term Intercompany            $  14.9              $11.7
                                       ==========          ========
Advances due from:
           IC                             $112.9           $      -
Loans due from:
           IC Financial Services            22.5                  -
           IC Leasing III                    2.8               26.9
                                             ---               ----
Total Long-Term Intercompany               $138.2          $   26.9
                                           ======          ========

       The amount due from IC includes  $59.9  million  used to acquire CCPH and
$25 million used by IC repay a portion of CCPH's revolver. Because of the nature
of the assets acquired these advances

                                      F-20

<PAGE>



are considered long-term. The loan to IC Financial Services is due in 1999 and
bears interest at LIBOR +50 basis points.  The loan to IC Leasing III is due in
1998 and bears interest at LIBOR +.625%.

       Interest  paid to ICRR  for 1996  and  1995  was  $5.3  million  and $1.6
million, respectively.

16.        Acquisition of CCP Holdings, Inc.

           On June 12, 1996, ICRR used proceeds it received from the issuance of
Commercial  Paper (average  interest rate 5.52% and average maturity 30 days) to
pay a $50.0 million  dividend to IC and to loan $59.9 million (5.625% per annum)
to IC. IC used the $109.9  million  and its bank  credit  lines to  acquire  CCP
Holdings,  Inc. ("CCPH").  The transaction  closed June 13, 1996,  following the
effective date of the approval order issued by the STB.

17.      Stock Based Compensation

         IC grants stock options to employees of ICRR under IC's 1990 Long-Term
Incentive Plan and the employees of ICRR also  participate in two stock purchase
plans to acquire IC Common Stock.  ICRR accounts for these plans under APB 
Opinion 25 under which no compensation cost has been recognized.

         Under the IC Long-Term Incentive Plan employees of ICRR can receive
incentive options, award stock appreciation rights, resticted stock and 
restricted stock units, dividend equivalents and other stock-based awards.
The exercise price of an option to employees is limited to fair market value.
Awards, vest ratably over four years and expire 10 years from date of grant.
          
         Employees  of ICRR were  awarded  22,500  shares and  37,500  shares of
restricted  stock in 1994 and 1993,  respectively.  No cash payments
are required by the individuals. Shares awarded may not be sold, transferred, or
used as collateral by the holders  until the shares  awarded  become free of the
restrictions.  Restrictions  lapse over a  four-year  period.  All shares  still
subject  to  restrictions  will be  forfeited  and  returned  to the plan if the
employee's  relationship  with ICRR is  terminated.  No shares were forfeited in
1996.  A total of 4,125  shares and 150 shares were  forfeited in 1995 and 1994,
respectively.  If the employee becomes disabled, or dies, or a change in control
occurs  during the  vesting  period,  the  restrictions  lapse at that time.  In
connection with early retirements,  43 and 7,632 shares vested in 1996 and 1995,
respectively.  The compensation  expense  resulting from the award of restricted
stock is valued at the closing  market price of IC's Common Stock on the date of
the award,  recorded  as a reduction  of  Stockholders'  Equity,  and charged to
expense evenly over the vesting period.  Compensation expense, recorded by ICRR,
was  $.8  million,  $1.2  million  and $.9  million  in  1996,  1995  and  1994,
respectively.

         IC has two stock purchase programs.  The basic program  is open to 
all ICRR  employees  and  permits  them to acquire IC common stock via 
payroll  deductions.  The other plan is the Discounted  Stock Purchase Plan  
("Discounted  Plan").  Only ICRR  management  employees  are  eligible  to
participate  in the  Discounted  Plan which provides for the investment of up to
15%  of an  eligible  employee's  salary  in  the  common  stock  of IC at a 15%
discount. A participant must continue employment with IC or its subsidiaries for
two years to retain the 15% discount,  and, during that period,  the shares will
be held by the plan's administrator. If the employee withdraws shares or directs
the sale of shares  within two  years,  the  discount  must be repaid in cash or
relinquished  shares.  No such  repayment  is  required  in the  event of death,
retirement,  disability or change of control of IC. Costs  associated with these
programs have been immaterial to date.

                                       F22

                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         The following table summarizes  changes in shares under options,  after
giving effect to the 3-for-2 stock split declared by IC in January 1996:

                                  Weighted     Weighted                 Weighted
                                   Average Average Fair                  Average
                                  Exercise     Value On  Exercisable    Exercise
                         Options     Price   Grant Date  At Year End       Price

Outstanding 12-31-94     780,000   $18.790                195,000        $18.790
Granted                  515,024    23.167     $9.109
Forfeited (a)            (11,250)   20.833
Outstanding 12-31-95   1,283,774    20.528                531,131        $19.886
Granted                  530,250    25.250     $9.016
Exercised (b)             (4,125)   21.257
Forfeited (c)             (3,375)   22.389
Outstanding 12-31-96   1,806,524    21.909                 961,105       $20.821



(a)      Pre-1995 option awards
(b)      Includes 3,375 pre-1995 option awards
(c)      Includes 1,125 pre-1995 option awards

         The last date exercisable for options above is March 8, 2006.

         Had ICRR adopted the compensation cost recognition  methods outlined in
FASB Statement No. 123 "Accounting for Stock-Based  Compensation" ("SFAS 123"),
ICRR's  1996 and 1995 net  income  would  have been as  follows - on a pro forma
basis - ($ in millions):

                                            1996                    1995
                                  As Reported    Pro Forma    Actual   Pro Forma

Income before Extraordinary Item     $126.6       $125.4      $131.2     $130.7
Net Income                           $126.6       $125.4      $119.8     $119.3

         Because the SFAS No. 123 method of  accounting  has not been applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.

         Of the options  outstanding at December 31, 1996, 961,105 have exercise
prices between $16.583 and $25.250,  with a weighted  average  exercise price of
$20.821,  a weighted average  remaining  contractual life of 8 years and all are
exercisable. The remaining 845,418 options, which

                                       F23

are not  exercisable,  have exercise  prices between  $16.583 and $25.250 with a
weighted average price of $23.146 and a weighted average  remaining  contractual
life of 8 years.

         The fair value of each option is  estimated on the grant date using the
Black-Scholes   option  pricing  models  with  the  following   weighted-average
assumptions:

                                    1996       1995

Risk-free interest rate(s)          6.7%       7.2%
Dividend yields                     3.2%       2.9%
Days to expiration                  3652       3652
Volatility                          31.4%      33.1%



18.        Selected Quarterly Financial Data - (Unaudited) ($ in millions):

                             First   Second     Third   Fourth
                            Quarter  Quarter   Quarter  Quarter
                            -------  -------   -------  -------

Revenues.................... $162.6   $149.4    $150.8   $154.4
Operating Income............   57.8     52.3      54.9     54.5
Net income..................   30.2     29.5      30.2     36.7


1995

Revenues.................... $168.0   $156.5    $161.3   $159.5
Operating income............   61.1     54.2      51.4     55.2
Income before extraordinary
 item, net..................   34.2     29.8      28.8     38.4
Net income..................   34.2     18.4      28.8     38.4


1994

Revenues.................... $147.8   $145.6    $147.0   $154.9
Operating income............   48.6     44.1      43.8     55.9
Net income..................   26.9     24.7      25.1     36.0



                                      F-25

<PAGE>













                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES








                                  F O R M 10-K




                          FINANCIAL STATEMENT SCHEDULES

                       SUBMITTED IN RESPONSE TO ITEM 14(a)

                                       F26

<PAGE>







                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES









                                    I N D E X

                                       T O
                          FINANCIAL STATEMENT SCHEDULES
                       SUBMITTED IN RESPONSE TO ITEM 14(a)




Schedules for the three years ended December 31, 1996:

         II-Valuation and qualifying accounts...........................F-28

Pursuant to Rule 5.04 of General  Rules of Regulation  S-X, all other  schedules
are omitted because they are not required or because the required information is
set forth in the financial statements or related notes thereto.







                                       F27

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                    SCHEDULE II -- VALUATION AND QUALIFYING
                                ($ in millions)

 Year Ended December 31, 1996


                                    Balance At  Additions  Payments  Balance
                                    Beginning    Charged     And     At End
        Classification               Of Year    To Expense (Charges) Of Year
Accrued redundancy reserve..........$ 33.9    $   2.1    $   5.8    $  30.2
Casualty and other reserves.......... 55.7        8.8       20.8       43.7
Environmental........................ 12.9        1.9       (2.3)      17.1
Bad debt reserve.....................  2.0        1.8        2.5        1.3
Taxes................................  1.8          -        0.3        1.5
      Total.........................$106.3    $  14.6    $  27.1    $  93.8


Year Ended December 31, 1995


                                     Balance At Additions  Payments  Balance
                                     Beginning   Charged     And      At End
        Classification               Of Year    To Expense (Charges) Of Year
Accrued redundancy reserve..........$ 38.2    $   3.0    $   7.3    $  33.9
Casualty and other reserves.......... 61.7       14.3       20.3       55.7
Environmental........................ 13.3        5.3        5.7       12.9
Bad debt reserve.....................  2.1        1.9        2.0        2.0
Taxes................................  1.8          -          -        1.8
      Total.........................$117.1    $  24.5    $  35.3    $ 106.3


Year Ended December 31, 1994


                                      Balance At Additions  Payments  Balance
                                      Beginning  Charged      And     At End
        Classification                Of Year    To Expense (Charges) Of Year
Accrued redundancy reserve..........$ 43.6    $   1.8    $   7.2    $  38.2

Casualty and other reserves.......... 62.3       16.9       17.5       61.7
Environmental........................ 11.9        4.4        3.0       13.3
Bad debt reserve.....................  3.1        1.9        2.9        2.1
Taxes................................  2.2          -        0.4        1.8
      Total.........................$123.1    $  25.0    $  31.0    $ 117.1


                                    F-28

<PAGE>



                        ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.


3.1  Articles  of  Incorporation  of  Illinois  Central  Railroad
     Company,  as amended.  (Incorporated by reference to Exhibit
     3.1  to  the  Registration  Statement  of  Illinois  Central
     Railroad Company on Form S-1 dated as of September 26, 1989.
     (SEC File No. 33- 29269))

3.2  By-Laws of Illinois  Central Railroad  Company,  as amended.
     (Incorporated   by   reference   to   Exhibit   3.2  to  the
     Registration  Statement of Illinois Central Railroad Company
     on Form S-1 dated as of September  26,  1989.  (SEC File No.
     33-29269))

3.3  Restated  Articles  of  Incorporation  of  Illinois  Central
     Corporation.  (Incorporated  by  reference to Exhibit 3.1 to
     the Current  Report of the Illinois  Central  Corporation on
     Form 8-K dated July 29, 1994. (SEC File No. 1-10720))

3.4  By-Laws  of  Illinois  Central   Corporation,   as  amended.
     (Incorporated   by   reference   to   Exhibit   3.4  to  the
     Registration  Statement of Illinois Central  Corporation and
     Illinois  Central  Railroad  Company on Form S-1 dated as of
     August 21, 1990. (SEC File Nos. 33-36321 and 33-36321-01))

3.5  Certificate  of Retirement of Illinois  Central  Corporation
     (Incorporated   by   reference   to   Exhibit   3.3  to  the
     Registration  Statement of Illinois Central  Corporation and
     Illinois  Central  Railroad  Company on Form S-1, as amended
     dated as of August  21,  1990.  (SEC File No.  33-40696  and
     Post-Effective  Amendments to  Registration  Statement  Nos.
     33-36321 and 33- 36321-01))


* Used  herein  to  identify  management  contracts  or  compensation  plans  or
arrangements as required by Item 14 of Form 10-K.





                               E-1

<PAGE>


                       ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.


4.1  Form of  14-1/8%  Senior  Subordinated  Debenture  Indenture
     dated as of  September  15, 1989 (the  "Senior  Subordinated
     Debenture  Indenture")  between  Illinois  Central  Railroad
     Company and United States Trust Company of New York, Trustee
     (including the form of 14-1/8% Senior Subordinated Debenture
     included as Exhibit A therein).  (Incorporated  by reference
     to Exhibit  4.1 to the  Registration  Statement  of Illinois
     Central Railroad Company on Form S-1, as amended dated as of
     September 26, 1989. (SEC File No. 33-29269))

4.3  Form of Pledge Agreement dated as of September 22, 1989, and
     amended and  restated as of July 23,  1991,  among  Illinois
     Central  Corporation and the Banks named therein that are or
     may become  parties to the  Amended and  Restated  Revolving
     Credit and Term Loan  Agreement  dated as of  September  22,
     1989,  and amended and restated as of July 23,  1991,  among
     the Illinois  Central  Railroad  Company and the Banks named
     therein and the Senior Note  Purchasers  that are parties to
     the Note  Purchase  Agreement  dated  as of July  23,  1991.
     (Incorporated  by reference to Exhibit 4.4 to the  Quarterly
     Report of Illinois Central  Corporation on Form 10-Q for the
     three  months  ended  September  30,  1991.  (SEC  File  No.
     1-10720))

4.4  Form of Note Purchase  Agreement  dated as of July 23, 1991,
     among Illinois  Central  Railroad  Company,  as issuer,  and
     Illinois  Central  Corporation,  as  guarantor,  for  10.02%
     Guaranteed  Senior  Secured  Series A Notes due 1999 and for
     10.4%  Guaranteed  Senior  Secured  Series B Notes  due 2001
     (including  the  Form of  Series  A Note  and  Series B Note
     included as Exhibits A-1 and A- 2,  respectively,  therein).
     (Incorporated  by reference to Exhibit 4.3 to the  Quarterly
     Report of the Illinois Central Railroad Company on Form 10-Q
     for the three months ended September 30, 1991. (SEC File No.
     1-7092))

4.10 Form of Commercial Paper Dealer  Agreement  between Illinois
     Central Railroad Company and Lehman  Commercial  Paper, Inc.
     dated as of November 19, 1993. (Incorporated by reference to
     Exhibit 4.10 to the Annual  Report on Form 10-K for the year
     ended  December  31,  1993  for  Illinois  Central  Railroad
     Company filed March 16, 1994. (SEC File No. 1-7092))

                               E-2

<PAGE>



                         ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.

4.11 Form of Issuing and Paying Agency  Agreement of the Illinois
     Central  Railroad  Company  related to the Commercial  Paper
     Program between  Illinois  Central Railroad Company and Bank
     America  National  Trust  Company  dated as of November  19,
     1993,   (including   Exhibit  A  the  Form  of  Certificated
     Commercial  Paper Note included  therein).  (Incorporated by
     reference to Exhibit 4.11 to the Annual  Report on Form 10-K
     for the year ended  December 31, 1993 for  Illinois  Central
     Railroad  Company  filed  March  16,  1994.  (SEC  File  No.
     1-7092))

4.14 Toronto Dominion Credit Agreement (Incorporated by reference
     to  Exhibit  4.1 to the  Quarterly  Report  of the  Illinois
     Central  Railroad  Company on Form 10-Q for the three months
     ended March 31, 1994. (SEC File No. 1-7092))

4.15 Form of Receivables Purchase Agreement dated as of March 29,
     1994,  between  Illinois Central Railroad Company and Golden
     Gate  Funding  Corporation.  (Incorporated  by  reference to
     Exhibit 4.2 to the Quarterly  Report of the Illinois Central
     Railroad  Company  on Form 10-Q for the three  months  ended
     March 31, 1994. (SEC File No. 1-7092))

4.17 Form of Note  Purchase  Agreement  dated as of May 1,  1993,
     between  Illinois  Central  Railroad  Company  and The First
     National  Bank  of  Boston  (Incorporated  by  reference  to
     Exhibit  4.1  to  the  Registration  Statement  of  Illinois
     Central   Railroad  Company  on  Form  S-3.  (SEC  File  No.
     33-61410))

4.18 Form  of  Second  Amended  and  Restated   Revolving  Credit
     Agreement dated as of April 2, 1993, amended and restated as
     of October 27, 1993 and further  amended and  restated as of
     November 1, 1994,  among Illinois  Central  Railroad Company
     and the Banks named  therein  (Incorporated  by reference to
     Exhibit  4.14  to the  Annual  Report  of  Illinois  Central
     Railroad  Company on Form 10-K for the year  ended  December
     31, 1994. (SEC File No. 1-7092))

                               E-3

<PAGE>



                          ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.


4.19 Form of Lease Agreement dated as of July 1, 1994, between IC
     Leasing   Corporation  III  and  Illinois  Central  Railroad
     Company.  (Incorporated  by reference to Exhibit 4.10 to the
     Annual  Report on Form 10-K for the year ended  December 31,
     1994, for the Illinois Central Railroad  Company.  (SEC File
     No. 1-7092))

4.20 Form of Lease  Agreement dated as of July 1, 1994 between IC
     Leasing   Corporation  III  and  Waterloo  Railway  Company.
     (Incorporated  by  reference  to Exhibit  4.11 to the Annual
     Report on Form 10-K for the year ended  December  31,  1994,
     for the Illinois  Central  Railroad  Company.  (SEC File No.
     1-7092))

4.21 Form of Options Agreement dated as of July 1, 1994,  between
     IC Leasing  Corporation  III and Illinois  Central  Railroad
     Company.  (Incorporated  by reference to Exhibit 4.12 to the
     Annual  Report on Form 10-K for the year ended  December 31,
     1994, for the Illinois Central Railroad  Company.  (SEC File
     No. 1-7092))

4.22 Form of Options Agreement dated as of July 1, 1994,  between
     IC Leasing  Corporation  III and Illinois  Central  Railroad
     Company.  (Incorporated  by reference to Exhibit 4.13 to the
     Annual  Report on form 10-K for the year ended  December 31,
     1994, for the Illinois Central Railroad  Company.  (SEC File
     No. 1-7092))

4.23 Third  Amended  and  Restated   Revolving  Credit  Agreement
     between  Illinois  Central  Railroad  Company  and the banks
     named  therein  dated  as of  April  2,  1993,  amended  and
     restated  as  of  October  27,  1993,  further  amended  and
     restated  as of  November  1, 1994 and  further  amended and
     restated as of April 28, 1995. (Incorporated by reference to
     Exhibit  4.1 to the  quarterly  report of  Illinois  Central
     Railroad  Company  in Form 10-Q for the three  months  ended
     June 30, 1995. (SEC File No. 1-7092))

4.24 Form of Indenture dated as of April 1, 1995 between Illinois
     Central  Railroad  Company  and The First  National  Bank of
     Boston.   (Incorporated  by  reference  to  Exhibit  4.1  to
     Registration  Statement  on  Form  S-3 of  Illinois  Central
     Railroad  Company  dated  April  12,  1995.  (SEC  File  No.
     33-58547))

                               E-4

<PAGE>


                       ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.

4.25 Form of Fixed Rate  Medium-Term Note dated as of May 1, 1995
     between   Illinois   Central  Railroad  Company  and  Lehman
     Brothers Inc.,  Salomon Brothers,  Inc and Smith Barney Inc.
     (Incorporated  by  reference  to Exhibit  4.1 to the Current
     Report of  Illinois  Central  Railroad  Company  of Form 8-K
     dated May 2, 1995. (SEC File No. 1-7092))

4.26 Form of Floating Rate  Medium-Term  Notes dated as of May 1,
     1995 between  Illinois  Central  Railroad Company and Lehman
     Brothers  Inc,  Salomon  Brothers  Inc and Smith Barney Inc.
     (Incorporated  by  reference  to Exhibit  4.2 to the Current
     Report of  Illinois  Central  Railroad  Company  on Form 8-K
     dated May 2, 1995. (SEC File No. 1-7092))

4.27 Amendment  No. 1,  dated as of April  29,  1996 to the Third
     Amended and Restated  Revolving  Credit  Agreement,  between
     Illinois  Central  Railroad  Company and the First  National
     Bank of Boston initially dated as of April 2, 1993,  amended
     and  restated  November  1, 1994,  and  further  amended and
     restated as of April 28, 1995. (Incorporated by reference to
     Exhibit  4 to the  Quarterly  Report  on Form  10-Q  for the
     quarter  ended  June  30,  1996,  for the  Illinois  Central
     Railroad  Company  filed on August 13,  1996.  (SEC File No.
     1-7092))

4.29 Form of  Indenture  between the  Illinois  Central  Railroad
     Company and The Chase Manhattan Bank, N.A., dated as of July
     25, 1996.  (Incorporated by reference to Exhibit 4.1 of Form
     S-3  dated  as of May  15,  1996  for the  Illinois  Central
     Railroad Company. (SEC File No. 1-7092))

4.30 Form of  Indenture  between the  Illinois  Central  Railroad
     Company and The Chase Manhattan Bank,  N.A., dated as of May
     1996.  (Incorporated by reference to Exhibit 4.2 of Form S-3
     dated as of May 15, 1996 for the Illinois  Central  Railroad
     Company. (SEC File No. 1-7092))

                               E-5

<PAGE>


                       ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.


4.31 Form of  Indenture  between the  Illinois  Central  Railroad
     Company and The Chase Manhattan Bank, N.A., dated as of July
     25, 1996.  (Incorporated by reference to Exhibit 4.1 of Form
     S-4 dated as of December 18, 1996 for the  Illinois  Central
     Railroad Company. (SEC File No. 1-7092))

4.32 Form of First  Supplemental  Indenture  between the Illinois
     Central  Railroad Company and The Chase Manhattan Bank, N.A.
     dated as of December 17, 1996. (Incorporated by reference to
     Exhibit  4.2 of Form S-4 dated as of  December  18, 1996 for
     the  Illinois  Central  Railroad  Company.   (SEC  File  No.
     1-7092))


4.33 Form of Registration Rights Agreement among Illinois Central
     Railroad  Company,  Lehman  Brothers Inc. And Merrill Lynch,
     Pierce, Fenner & Smith Incorporated dated as of December 10,
     1996.  (Incorporated by reference to Exhibit 4.3 of Form S-4
     dated  as of  December  18,  1996 for the  Illinois  Central
     Railroad Company. (SEC File No. 1-7092))

4.34 Form of fixed and floating rate  Medium-Term  Notes Series B
     for the Illinois Central Railroad Company.  (Incorporated by
     reference  to Exhibit 4.3 to the current  report on Form 8-K
     dated as of July 29, 1996 for the Illinois  Central Railroad
     Company (SEC File No. 1-7092))

10.1*Form  of   supplemental   retirement   and   savings   plan.
     (Incorporated   by   reference   to   Exhibit   10C  to  the
     Registration  Statement of Illinois  Central  Transportation
     Co. on Form 10 filed on October 7, 1988,  as  amended.  (SEC
     File No. 1-10085))

10.3*Form  of IC  1990  Stock  Purchase  Plan.  (Incorporated  by
     reference to Exhibit 10.6 to the  Registration  Statement of
     Illinois Central  Corporation on Form 10 filed on January 5,
     1990, as amended. (SEC File No. 1-10720))

10.4*Form of IC Long-Term  Incentive  Option Plan.  (Incorporated
     by reference to Exhibit 10.17 to the Registration  Statement
     of  Illinois   Central   Corporation  and  Illinois  Central
     Railroad Company on Form S-1 dated as of September 26, 1989.
     (SEC File Nos. 33- 36321 and 33-36321-01))
                               E-6

<PAGE>


                       ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.

10.5*Amendments  No.  1 and No. 2 to the IC  Long-Term  Incentive
     Plan.  (Incorporated  by reference to the Proxy Statement of
     Illinois  Central  Corporation  in connection  with its 1992
     Annual Meeting of Stockholders. (SEC File No. 1-10720))

10.6 Railroad  Locomotive  Lease  Agreement  between  IC  Leasing
     Corporation I and Illinois Central Railroad Company dated as
     of September 5, 1991.  (Incorporated by reference to Exhibit
     10.9 to the  Annual  Report on Form 10-K for the year  ended
     December 31, 1991 for the Illinois  Central Railroad Company
     filed March 12, 1992. (SEC File No. 1-7092))

10.7 Railroad  Locomotive  Lease  Agreement  between  IC  Leasing
     Corporation II and Illinois  Central  Railroad Company dated
     as of  January  14,  1993.  (Incorporated  by  reference  to
     Exhibit 10.6 to the Annual  Report on Form 10-K for the year
     ended December 31, 1992, for the Illinois  Central  Railroad
     Company filed March 5, 1993. (SEC File No. 1-7092))

10.13* Form of the Illinois Central  Railroad  Company  Executive
     Performance  Compensation Program (Incorporated by reference
     to Exhibit  10.1 to the  report on Form 8-K of the  Illinois
     Central  Railroad  Company  dated as of July 29, 1994.  (SEC
     File No. 1- 7092))

10.14* Form of the Illinois Central Railroad Company Supplemental
     Executive  Retirement  Plan  (Incorporated  by  reference to
     Exhibit  10.2  to the  report  on Form  8-K of the  Illinois
     Central  Railroad  Company  dated as of July 29, 1994.  (SEC
     File No. 1-7092))

10.15* Form of the Illinois Central  Railroad  Company  Executive
     Deferred  Compensation  Plan  (Incorporated  by reference to
     Exhibit  10.3  to the  report  on Form  8-K of the  Illinois
     Central  Railroad  Company  dated as of July 29, 1994.  (SEC
     File No. 1-7092))

10.16* Form of  Illinois  Central  Railroad  Company  Performance
     Compensation  Program  (Incorporated by reference to Exhibit
     10.4 to the  report  on  Form  8-K of the  Illinois  Central
     Railroad  Company  dated as of July 29, 1994.  (SEC File No.
     1-7092) E-7

<PAGE>


                       ILLINOIS CENTRAL RAILROAD COMPANY
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                               Sequential
 No.                               Descriptions                         Page No.


10.17*   Illinois   Central   Corporation   Management   Employee
     Discounted  Stock Purchase Plan.  (Incorporated by reference
     to  Exhibit  10.7 to the  report  of Form  10-K of  Illinois
     Central  Corporation  for the year ended  December 31, 1995.
     (SEC File No. 1-10720)

10.18Form of Illinois  Central  Railroad Company Union Employees'
     Savings  Plan.  (Incorporated  by reference to  Registration
     Statement of Illinois Central  Corporation on Form S-8 dated
     as of July 18, 1995. (SEC File No. 33-61095))
10.20* Form of Illinois Central  Railroad Company  Incentive 2000
     Plan  (Incorporated  by  reference  to  Exhibit  10  to  the
     Quarterly  Report on Form 10-Q for the  quarter  ended March
     31, 1996, for the Illinois Central Railroad Company filed on
     May 10, 1996. (SEC File No. 1-7092))

21   Subsidiaries of Registrant                             (Included at E-9)

23   Consent of Arthur Andersen LLP                                       

27   Financial Data Schedule                                             

99   Provisions of the Private Securities Litigation Reform Act of 1995


                               E-8

<PAGE>